2021 Payroll Planning

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First payroll remittance for year 2021 will be due on Feb 15th 2021 if you are monthly remitter or on April 15th 2021 if you are quarterly remitter.

The CPP rate for year 2021 has gone up to 5.45% from 4.25% in 2020, see the table below.

CPP contribution rates, maximums and exemptions
YearMaximum annual pensionable earningsBasic exemption amountMaximum contributory earningsEmployee and employer contribution rate (%)Maximum annual employee and employer contributionMaximum annual self-employed contribution
2021$61,600$3,500$58,1005.45$3,166.45$6,332.90
2020$58,700$3,500$55,2005.25$2,898.00$5,796.00

CPP rate has increased, however, the effective personal tax rate is higher on dividend income.  Therefore, switching to dividend income will not save full amount of both CPP i.e. $6,332.90.  See below salary Vs. dividend Analysis for year 2021.

Salary Vs. Dividend Analysis (Ontario Resident – Year 2021)
Dividend Scenario  
Corporate Income      50,000      75,000   100,000   125,000   150,000   175,000   200,000
Corporate tax @ 12.2%        6,100        9,150      12,200      15,250      18,300      21,350      24,400
Dividend issued      43,900      65,850      87,800   109,750   131,700   153,650   175,600
Personal tax on div. income        2,245        6,846      12,522      20,446      28,425      37,556      46,837
Cash on hand after both taxes      41,655      59,004      75,278      89,304   103,275   116,094   128,763
Salary Scenario  
Corporate income      50,000      75,000   100,000   125,000   150,000   175,000   200,000
Less: Deductible Employer CPP        2,534        3,166        3,166        3,166        3,166        3,166        3,166
Personal Salary Income      47,466      71,834      96,834   121,834   146,834   171,834   196,834
Personal tax on salary income        6,670      13,858      21,998      32,828      43,680      55,553      69,126
Cash on hand after both taxes      40,796      57,976      74,836      89,006   103,154   116,281   127,708
Excess (short) cash Divi Vs. Salary           859        1,028           442           298           121          (187)        1,055
CPP ( Employee Paid)        2,534        3,166        3,166        3,166        3,166        3,166        3,166
Net cash saving under dividend        3,394        4,195        3,609        3,465        3,288        2,980        4,222
CPP lost under dividend option        5,069        6,333        6,333        6,333        6,333        6,333        6,333
Net Tax paid more under dividend option      (1,675)      (2,138)      (2,724)      (2,868)      (3,045)      (3,353)      (2,111)