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RRSP Offsets Your Double CPP Bill

You pay double CPP as self-employed — RRSP deductions help claw back that extra tax burden.

A guide, not advice.

This page explains general rules. Do your own research, confirm your numbers with the CRA (your My Account and Notice of Assessment are the official record) or the other official sources listed at the end, and talk to a qualified professional before acting.

Probably: RRSP General information, not advice for your situation.

Plain English

When you work for yourself, you don't have an employer splitting your CPP bill. You pay both halves — about 11.9% of your earnings. That's a big chunk of money on top of income tax. An RRSP lets you deduct your contributions from your income, which lowers how much tax you owe. It's one of the best tools to balance out that heavier tax load. But there's a catch: you need to pay yourself a salary (not just dividends) to create RRSP room. No salary = no RRSP room.

You're an incorporated consultant paying yourself a $120,000 salary. Your double CPP costs about $8,068 (11.9% on pensionable earnings). A $21,600 RRSP contribution (18% of $120,000) at a 43.41% combined rate gives you a $9,377 refund — more than covering the extra CPP cost.

Show the analysis

Self-employed taxpayers remit CPP at the combined employer-employee rate of 11.9% on base pensionable earnings (up to the YMPE). This is partially offset by a deduction on the employer-equivalent half, but the net cash outflow is significantly higher than for T4 employees. RRSP deductions at combined marginal rates of 43%+ provide substantial relief. The critical structural constraint is ITA s.146: RRSP room = 18% of prior-year earned-income. Corporate dividends do not qualify as earned-income, so salary-only compensation strategies are necessary to generate room.

Salary: $120,000. RRSP room generated: $120,000 × 18% = $21,600. RRSP refund at 43.41% (Ontario, income above $117,045): $21,600 × 43.41% = $9,377. Double CPP cost (approximate): $8,068. Net position after RRSP refund: +$1,309 ahead of the CPP burden.

Edge cases

  • Paying yourself only via non-eligible dividends generates zero RRSP earned-income — you must draw T4 salary to create room.
  • Consider a salary/dividend split: enough salary to maximize RRSP room ($188,333 for the $33,810 limit), remainder as dividends for integration efficiency.

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Where this information comes from

This page is based on publications from the CRA, last checked against them on . The full list is below, and the official source always takes precedence over anything written here.

It is a general guide, not financial, tax or legal advice. Do your own research, confirm your own numbers in CRA My Account or with the official source, and talk to a qualified professional before making a decision. Canadian Financials is independent and is not affiliated with or endorsed by the CRA or any government.

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