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Ottawa, February 27, 2004
2004-015

Minister of Finance Proposes Clarification of Rules for CPP Employer Contributions

• Backgrounder on Proposed Clarification of Rules for CPP Employer Contributions.

Finance Minister Ralph Goodale today announced proposals to amend the Canada Pension Plan (CPP) legislation to clarify the rules governing employer contributions.

The proposals relate to employer contributions that are in excess of required amounts and the withholding and remittance of CPP contributions by employers.

"These changes are intended to codify a long-standing practice of the CPP and to preserve its financial stability," said Minister Goodale. "They do not affect CPP contribution rates and leave CPP benefits unchanged."

The changes will more clearly set out that, in accordance with long-standing practice, the amount that an employer must contribute for a year for a given employee is equal to the amount that must be remitted at source by that employer for the employee and does not take into account any amounts remitted by other employers of that employee in the year. Only amounts in excess of this required amount for the year will be eligible for recovery by the employer.

These changes are proposed to be effective from March 18, 2003, and will apply to recoveries of overpayments in respect of current and previous tax years.

In addition, the changes will deem employment to be continuous in cases where there is a change in the corporate structure of an employer, provided there has been no interruption of service by employees. Currently, employees in such circumstances are sometimes treated as if they had joined a new employer. As a result, employers are required to begin withholding and making CPP contributions anew, even though the employer and employee may already have made the maximum annual contribution.

Under the proposed change, this will no longer be the case. The change would be effective as of January 1, 2004, following the passage of legislation.

The proposed changes ensure the continued protection of employee privacy and limit incentives for discriminatory hiring practices.

Both the proposed changes will also ensure that employers are treated similarly regardless of where in Canada they operate. On December 12, 2003, the Government of Quebec proposed similar clarifications to the legislative rules governing employer contributions to the Quebec Pension Plan (QPP). Moreover, the QPP already deems employment as continuous following a change in corporate structure. In both cases, the proposed changes to the CPP will ensure harmonization between the CPP and the QPP.

The attached backgrounder provides technical details about the proposed changes.

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