Canadians could lose hundreds of dollars from their paycheques as the government plans to increase the Canada Pension Plan (CPP) contribution tax in 2021.

According to the Canada Revenue Agency, the maximum annual contribution for 2021 will be $6,332.90, an increase of $536.90 from 2020. The maximum amount of pensionable earnings has also increased to $61,600 from $58,700.

CPP contribution increases are based on whether average weekly earnings increased throughout the year. While average earnings increased, it was not because Canadians were getting paid more — it was because lower-income Canadians lost their jobs during the coronavirus lockdowns.

During the pandemic, Canadians in lower-income sectors like food service and retail were laid off by the thousand, effectively raising the average income of Canadians still employed.

Canadian Federation of Independent Business Dan Kelly recently told the Canadian Press that the 2021 limit effectively increases the workers and employers pay into CPP by 9.3%. The legal increase limit for a single year is 5%.

“That’s going to be hundreds of dollars of new CPP premiums out of paycheques of middle-income Canadians not because they got a raise, but because the formula has not had a COVID adjustment,” Kelly says.

“We think this is deeply unfair.”

Earlier in December, Conservative leader Erin O’Toole called on the government to postpone the CPP payroll increase, citing the strain the increase would cause employees and employers in Canada’s fragile economy.

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