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Canada is reducing CPP contribution rates starting in 2027. Here is what employers and self-employed individuals should know about the new rates, YMPE, CPP2 and potential payroll savings.
Canadian employers will see a modest reduction in CPP payroll costs beginning in 2027.
The federal government announced in its April 2026 Spring Economic Update that the Canada Pension Plan contribution rate would be reduced starting January 1, 2027.
For businesses with employees, this means slightly lower employer CPP contributions and correspondingly lower deductions from employee pay.
What Is Changing?
For 2026, employees and employers each contribute CPP at a rate of 5.95% on pensionable earnings above the $3,500 basic exemption and up to the Year's Maximum Pensionable Earnings, or YMPE.
Starting in 2027, this rate will decrease from 5.95% to 5.75% for both employees and employers.
This means employers will pay slightly less CPP for each employee, while employees will also see slightly lower CPP deductions from their pay.
What Is the YMPE?
YMPE stands for Year's Maximum Pensionable Earnings.
It is the annual earnings ceiling used to calculate regular CPP contributions.
For 2026, the YMPE is $74,600.
The first $3,500 of earnings remains exempt from regular CPP contributions, so regular CPP is effectively calculated on pensionable earnings between $3,500 and $74,600.
For 2026:
| Earnings Range | Employee Rate | Employer Rate |
|---|---|---|
| First $3,500 | No CPP | No CPP |
| $3,500 to $74,600 | 5.95% | 5.95% |
The YMPE is adjusted annually. The 2027 YMPE has not yet been announced and will determine the actual earnings ceiling to which the new 5.75% rate applies.
What About CPP2?
CPP2 applies to higher earnings above the YMPE and up to a second earnings ceiling known as the Year's Additional Maximum Pensionable Earnings, or YAMPE.
For 2026:
- YMPE is $74,600; and
- YAMPE is $85,000.
This means CPP2 applies only to earnings between $74,600 and $85,000.
Employees and employers each contribute 4% on earnings within this range.
The CPP2 rate is not changing in 2027.
A simplified view of the 2026 CPP structure is:
| Earnings Range | Employee Rate | Employer Rate |
|---|---|---|
| First $3,500 | No CPP | No CPP |
| $3,500 to $74,600 | 5.95% | 5.95% |
| $74,600 to $85,000 | 4% CPP2 | 4% CPP2 |
| Above $85,000 | No further CPP | No further CPP |
The 2027 YMPE and YAMPE will be announced separately, so the dollar thresholds will change even though the CPP2 rate remains at 4%.
How Much Will Employers Save?
The savings for one employee are relatively modest, but they can add up for businesses with larger payrolls.
The federal government estimates that an employee earning $70,000 annually would save approximately $133 per year, with the employer receiving approximately the same annual saving.
For example, an employer with 25 employees earning approximately this amount could see employer CPP costs reduced by roughly $3,325 annually, assuming similar pensionable earnings across the workforce.
Actual savings will depend on employee earnings, the annual CPP limits and the number of employees.
What About Self-Employed Individuals?
Self-employed individuals generally pay both the employee and employer portions of CPP.
As a result, the reduction in the CPP rate can provide a larger direct saving for self-employed individuals compared with employees, since they effectively bear both portions.
The CPP2 rate for self-employed individuals remains unchanged.
When Does the Change Take Effect?
The CPP rate reduction was announced in the federal Spring Economic Update in April 2026 and will apply starting January 1, 2027.
For employers, the main practical point is to ensure payroll systems are updated for the new 2027 rates.
What Should Employers Do?
For most employers, there is no special application or election required.
Payroll systems and payroll service providers should incorporate the revised CPP rates for 2027. Businesses should still confirm that their payroll software has been updated before processing the first payroll of the new year.
For businesses in Mississauga, Toronto and surrounding GTA communities with larger payrolls, even a small reduction in the employer contribution rate can produce meaningful aggregate savings.
The change also provides a useful opportunity to review overall payroll costs, including CPP, CPP2, EI and other employer payroll obligations when preparing 2027 budgets.
What Business Owners Should Know
The CPP reduction is not a major tax cut for any individual employee or employer, but it does provide a permanent reduction in CPP payroll costs beginning in 2027.
The benefit becomes more noticeable for employers with multiple employees and for self-employed individuals who pay both portions of CPP.
The 2027 YMPE and YAMPE have not yet been announced, so the final dollar contribution limits for 2027 will become clear once those annual thresholds are released.
How Source Accounting Can Help
Source Accounting Professional Corporation assists businesses with payroll, bookkeeping, corporate tax and ongoing tax planning.
We serve businesses and incorporated professionals in Mississauga, Toronto, Brampton, Oakville, Milton, Etobicoke, North York and across the GTA. We can help businesses understand payroll obligations, review payroll costs and ensure accounting and tax reporting remain properly coordinated.
This article provides general information only and is not intended to constitute tax, accounting or legal advice. Tax consequences depend on the specific facts and circumstances of each taxpayer. Professional advice should be obtained before implementing a tax or corporate planning strategy.
