CPP and CPP2 for the Self-Employed

As a self-employed tradesperson you pay both halves of the Canada Pension Plan, the employee half and the employer half, because there is no employer to split it with. That doubles the rate compared with a salaried worker. For 2026 the self-employed CPP rate is 11.90 percent on pensionable earnings up to the ceiling, for a maximum of $8,460.90, plus the second tier (CPP2) at 8.00 percent up to a further maximum of $832. At full earnings that is a combined maximum of $9,292.90 a year, paid on top of your income tax. CPP is mandatory once your net self-employment income passes $3,500.‍‌​​​‌‌‌​‌​​‌​​​‌​‌‌​‌‌‌​​​‌‌​​​​‍

Why it stings

An employee pays 5.95 percent of CPP and their employer quietly pays the other 5.95 percent. As a sole proprietor you are both, so you pay the full 11.90 percent yourself. Many tradespeople plan for income tax and then get blindsided by a CPP bill of up to $8,460.90 in base CPP plus $832 in CPP2 on the same return. Budget for it from day one.

The 2026 numbers

• Year's Maximum Pensionable Earnings (YMPE): $74,600
• Basic exemption: $3,500 (no CPP on the first $3,500 of profit)
• CPP1 self-employed rate: 11.90 percent
• Maximum CPP1 self-employed contribution: $8,460.90
• Year's Additional Maximum Pensionable Earnings (YAMPE) for CPP2: $85,000
• CPP2 self-employed rate: 8.00 percent (on earnings between $74,600 and $85,000)
• Maximum CPP2 self-employed contribution: $832

How it is calculated on the return

CPP for the self-employed is worked out on Schedule 8 of your T1 return, based on your net self-employment income from the T2125.

• Base CPP (CPP1): take your net business income, subtract the $3,500 basic exemption, and apply 11.90 percent, capped at the maximum of $8,460.90. The cap is reached once your profit hits the YMPE of $74,600.
• CPP2: any earnings between $74,600 and $85,000 are charged a further 8.00 percent, capped at $832.

The deduction and credit split that softens the blow

CPP is expensive, but it is not as bad as the headline once the tax offsets are applied. The cost is split into a deduction and a credit:

• The employer-equivalent half of your base CPP is a deduction on line 22200, coming off your net income before tax is calculated. It is worth your marginal tax rate.
• The employee-equivalent half of your base CPP is a non-refundable tax credit on line 31000, worth 14 percent federally (plus the provincial equivalent).
• The enhanced portions, the first-additional CPP1 and the CPP2, go to line 22215 as a further deduction.

The net result: roughly half your CPP cost is a deduction worth your full marginal rate, and half is a credit worth only the bottom rate. For an Ontario tradesperson around $80,000 with a combined marginal rate near 30 percent, the deduction alone trims well over $1,000 off the tax bill, so the real after-tax cost of CPP is noticeably less than the sticker price.

Worked example: $80,000 net profit (2026)

• CPP1: pensionable earnings are capped at YMPE minus the exemption, so $74,600 minus $3,500 is $71,100. At 11.90 percent that is the maximum $8,460.90.
• CPP2: earnings between $74,600 and $80,000 are $5,400. At 8.00 percent that is $432.
• Total CPP cost: $8,460.90 plus $432, which is $8,892.90.
• Tax offset: the line 22200 deduction of $4,230.45 (half the base CPP) plus the line 31000 credit and the line 22215 deductions bring the real after-tax cost well below $8,892.90.

Do you have a choice?

For base CPP, no. It is mandatory on self-employment income over $3,500 if you are aged 18 to 70. From 65 to 70 you can elect to stop contributing once you are receiving your CPP retirement pension. CPP is not the same as EI: regular EI does not cover the self-employed, and the EI special-benefits opt-in is a separate, voluntary scheme.

Common mistakes

• Forgetting CPP exists. It is a separate, large bill on top of income tax, and it is the most common nasty surprise in a tradesperson's first profitable year.
• Assuming employee rates. You pay 11.90 percent, not 5.95 percent. Set money aside accordingly.
• Ignoring CPP in instalments. Quarterly tax instalments are meant to cover your CPP as well as income tax. Under-paying instalments because you forgot CPP triggers interest.
• Overlooking the offsets. The deduction and credit genuinely reduce the cost. Make sure your return or software claims lines 22200, 22215 and 31000.

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