CPP Changes in 2012

2012 CPP Overpayment Calculation and Efile Error 70448

On Feb 26, 2013, CRA sent an Email to software developers, describing changes required when calculating the CPP overpayment for individuals commencing receipt of CPP retirement benefits.

This type of change will take a while to study and implement via a program update, as it deviates considerably from the published T2204 and S8 forms. In the mean time, please follow the CRA's directive as shown below, and override the CPP overpayment on form T2204 or S8 as applicable.

Otherwise it will be rejected by the Efile process most likely with error 70448.

The Help Desk may instruct you to prorate the CPP basic exemption by the number of months of the T4AP, but this may not work either.

This change has been impemented on the March 1 update of the T1-2012 program via the 'CPP Adjustment' buttom that appears on the T2204 and S8.

 

FROM CRA:
For 2012, changes made under Bill C51 for the Working Beneficiaries, Paragraph 19(d) was added to the CPP. It requires that the CPP basic exemption be calculated differently in the year an individual commences receiving CPP retirement benefits. Individuals can commence receiving CPP retirement benefits at age 60. This provision is intended to protect the individuals’ entitlement to survivor, children’s and death benefits.

 

Calculation of the basic CPP/QPP exemption for a year in which a CPP or QPP retirement pension becomes payable

Part 1: If the total contributory earnings (D + E) is NOT greater than (F x C):
The basic CPP/QPP exemption is equal to:

3500 x C


Part 2: If the total contributory earnings (D + E) is greater than (F x C), the amount of the basic CPP/QPP exemption, as calculated in Part 1, is increased by the lessor of G or H:


G = 3500 x (I minus greater of J or K) / 12

H = (D + E) – (F x C)


LEGEND

A = The number of months before the retirement
B = Box 21 of T4A(P) slip = the number of months excluded re disability
C = (A minus B)/12
D = total contributory earnings from salary and wages
E = total contributory earnings from self-employment
F = the maximum pensionable earnings for the tax year
I = the number of retirement months
J = the number of months an election has effect (not including months in K)
K = is the number of month after the individual reaches 70 or dies (whichever is earlier)

Example – 9

The 62 year old taxpayer who does not work or live in Quebec. She is in receipt of retirement benefits for 3 months and cannot file a CPT30 election since she is not 65 years of age. Client has a small amount of T4 income of $34,000 and has made $1,520.00 in CPP contributions. The calculation is as followed:
C = 9/12
D = 34,000
E = 0
F = 50,100

Part 1:
If the total contributory earnings (34,000 + 0=34,000) is NOT greater than (50,100 x 9/12=37,575):
The basic CPP/QPP exemption is equal to:

3500 x 9/12 = 2,625


Since the contributory earnings are not greater than the prorated maximum pensionable earnings Part 1 calculations will be used and the basic exemption will be prorated to determine the CPP overpayment.

34,000 – (3500 x 9/12=2625)
31,375 x .0495
= 1553.06 required CPP contributions
Therefore, no overpayment is calculated since the client contributed 1,520.00

Example – 10

The 66 year old taxpayer commences receiving CPP retirement benefits in February and the SE election is effective in May. The taxpayer dies in September. The usual proration of the CPP basic exemption would be for one month. (3500 x1/12) However since this is the first year of receipt of benefits, Section 19 applies, as follows.

A = 1
B = 0
C = 1/12
D = 0
E = 10,000
F = 50,100
I = 11
J = 8
K = 0


Part 1: If the total contributory earnings (D + E) is NOT greater than (F x C):
The basic CPP/QPP exemption is equal to:

3500 x C
3500 X 1/12 = 292

Part 2: If the total contributory earnings (D + E) is greater than (F x C), the amount of the basic CPP/QPP exemption, as calculated in Part 1, is increased by the lessor of G or H:

In this case, the total contributory earnings is greater than the basic CPP/QPP exemption Part 2 calculation will be required.

(D = 0 + E = 10,000) 10,000 > 4,175 (F = 50,100 X C = 1/12)

G = 3500 x (I minus greater of J or K) / 12
875 = 3500 X (11 – 8) / 12
H = (D + E) – (F x C)
5825 = (10,000 – 4,175)

Since G is the lesser amount G of H, it will be used to increase the basic exemption calculated in Part 1.

Basic exemption = 1,167 (292 + 875)

 

 

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