CPP and EI for Incorporated Business Owners: What You Need to Know
For many incorporated professionals in Canada, deciding whether to contribute to programs like the Canada Pension Plan (CPP) and Employment Insurance (EI) isn’t just about taxes – it’s about understanding what you get in return.
These programs were designed with employee protections in mind, but business owners have more flexibility in how they participate. That flexibility, however, comes with trade-offs. Let’s explore how each program works and whether it makes sense to include them in your compensation strategy.
CPP: An Indexed, Risk-Free Retirement Benefit
CPP is one of the few retirement programs in Canada that is indexed to inflation and backed by legislation. It provides a lifetime pension based on how much you contribute during your working years, up to a maximum each year.
If you pay yourself salary (rather than dividends), you contribute to CPP. In 2025, this means a combined contribution of up to $7,735. It’s split between the employer and employee portions – but for incorporated professionals, you’re paying both.
While some view CPP contributions as a tax, they are more accurately seen as a form of forced savings. The long-term return on contributions – assuming you live into your 80s – is often around 5% per year, risk-free. That’s difficult to match with private investments, especially once you factor in inflation, fees, and behavioral risks.
CPP isn’t just for retirement:
- If you become disabled, CPP Disability benefits may provide support
- If you pass away, a survivor pension and $5,000 death benefit may be paid to your family
- CPP credits can be shared between spouses and include a child-rearing provision
Opting into CPP through salary can be a strategic move, particularly if you value predictable, inflation-linked retirement income (and, anecdotally, I don’t have a single client who doesn’t love receiving their CPP, especially during market downturns!).
EI: Limited Value for Most Owners, but One Exception
In most cases, incorporated business owners are not required to contribute to EI, and they generally can’t access it. This is because owners are considered non-arm’s-length employees of their own company. Even if you pay yourself a salary and remit EI premiums, Service Canada can deny your claim.
There is, however, an exception: the EI special benefits program.
If you apply and are approved for this program, you may be able to access:
- Maternity and parental leave
- Sickness benefits
- Compassionate care leave
To qualify, you must apply in advance and commit to paying premiums for at least 12 months before making a claim. You also can’t opt out once you’re in – premiums must continue as long as you’re earning salary.
This might make sense for someone planning to start a family or anticipating a need for protected leave. But for most incorporated professionals, EI doesn’t offer meaningful value.
Dividend-Only Strategy: What You Might Be Giving Up
Choosing to pay yourself only in dividends may save on CPP and EI premiums, but it means:
- No CPP accumulation
- No RRSP room creation (dividends aren’t earned income)
- No access to EI benefits
- No WCB or T4-linked programs
The short-term tax savings may feel good, but the long-term consequences are often overlooked. Many professionals later regret having missed out on building CPP entitlement or RRSP room during high-earning years.
Integrated Planning Is Key
You don’t have to choose one strategy forever. A blend of salary and dividends can offer the best of both worlds:
- Create RRSP room with just enough salary
- Maximize TFSA contributions from corporate dividends
- Contribute to CPP during high-income years to lock in retirement value
These choices should reflect your personal goals, family situation, and retirement timeline. More importantly, they should be revisited regularly as your income and needs evolve.
As your advisor, I can help coordinate with your accountant to design a strategy that makes the most of these government programs – or intentionally avoids them when the math doesn’t add up.
Either way, the decision to participate in CPP or EI as a business owner should be based on long-term value, not just short-term tax.
Disclosures:
Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Unit values and investment returns will fluctuate.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.
Know the rules. Weigh the benefits. Make informed choices.
And remember: CPP contributions aren’t just a tax—they’re pension building.
