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Monday, March 12, 2012

Canada Pension Plan - In SAP

CPP – CANADA Pension Plan
This is a deduction made from Employee earnings. The deduction goes into Employee pension plan. And is paid to employee by the government, when the employee retires. The company also makes an equal contribution to what employee is contributing.
In Quebec region instead of CPP, QPP is deducted. (QPP – Quebec Pension Plan).

Method of Calculation –
Every year, a Maximum amount is defined (This is the maximum ceiling amount on which the CPP/QPP can be calculated.). And also a Annual Basic exemption is defined.
So the maximum earnings which can be subject to CPP/QPP is Maximum ceiling amount – Annual Basic Exemption amount.
i.e (47200-3500)*4.95% = 2163.15 (for Year 2010. see table below)
So for the year 2010, for an employee the total CPP deductions cannot exceed 2163.15
If an employee reaches this amount half way in the year, then for the rest of the duration of the year, there would be no CPP deductions.

Example :
Employee pensionable earnings for a Month = 6000 $. (Stored in either of wage types /118, /119, /120, /121)
So the Basic exemption per pay period would be 3500/12 = 291.66 (assuming the employee is paid Monthly and there are 12 Pay periods in a year)
So the Earnings on which Pension is calculated is 6000-291.66= 5708.3
The Pension for the month would be 5708.3*4.95% = 282.56
So every month till July, 282.56 is deducted. At the end of July the total deductions cumulated would be 1977.93 And in the month of August 282.56 is not deducted as the total deduction would become 2260.5, which is greater than the maximum limit of 2163 (upto July 1977.93+282.56 for August). So for the month of August only 185.21 is deducted as the total deductions would be 2163.15(1977.93 upto July + 185.21 for August), and there would not be any deductions for the months September to December.

Relevant Wage types / Cumulation Classes

/118 and /119 are non exempt wage types i.e while calculating CPP/QPP, the basic exemption is not calculated on these amounts. These earnings can include wages which came from retro or bonus payments etc.

Table T5KTC stores the data like Max CPP / QPP amount, CPP/QPP rate and Basic Exemption

Function KATAX calculates CPP/QPP, when called with SI as the 1st parameter


CPP Slab Rates for Various Years – Source (http://www.cra-arc.gc.ca/)


Various Scenarios

1)Excess CPP deductions
If for an emplouee the CPP deductions were deducted in excess, then while filing their income tax and benefit returns, employees can claim the refund. However , the Employers cannot entitled for a refund.

2)Change of Job
If the employee changes the employment, during a year, the new employer will be deducting the CPP / QPP without considering the amount already deducted by the previous employer. Even though, the maximum amount of CPP has been deducted at the previous employer.

3)Transfer of Employees (to Qubec / from Qubec) to any other Province
If an employee from any other provice is transferred to Qubec, then the CPP deducted till date will be considered and the Max Amount for the province of Quebec will be valid
If an employee from Qubec is transferred to any other province, then the Max amount as per CPP would be valid, and the amount already deducted in QPP is also considered

4)In case of Mergers and Acquisitions
In these cases as per the rule(http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/rstrctrcpp-eng.html), the previously deducted CPP/QPP amount would be considered. In SAP, if because of these Mergers and Acquisitions, if there is a change in the Business numbers, then for the system to consider the previously deducted amount, an entry has to be made in table T5KBN.

Year End Forms
CPP Contributions are shown in Box 16 of T4 form. Only the Employee contributions are shown
QPP contributions are shown in Box 17 of T4 form. Only the Employee contributions are shown
QPP contributions are shown in Box B(SAP Box 2) of RL1 form. Employer QPP contributions are shown in Box B-S(SAP Box 2S) of RL1 form.

Exempting an Employee from CPP
If you want to exempt an employee from CPP deductions, then a relevant value has to be entered in infotype IT0464 (Additional Tax Data Canada), under CPP.

See the selected box in the below figure.


And the possible options can be


Related OSS Notes
2011 Year End -- 1630315, 1644067 – CPP Calculations for Employees aged 60 and above

3 comments:

  1. I really really love this article. It's number based and very sharply put. No, "if this" and "maybe that". It's so straight forward and I think that it's great. My mom and dad have been trying to figure out their canada pension plan for awhile now, and they have been having a really hard time figuring it out. I'd really love to email them a link to this post so that they can look it over, and see if that helps them at all!

    ReplyDelete
    Replies
    1. Thanks, good to hear that, it has been some use to you.

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