# Emilio files his tax return

Posted by David Gobeil on

For 2020, Emilio is self-employed, and he expects that his business income will be \$82,000. His marginal tax rate (MTR) is 38%. The federal conversion rate for the CPP contribution tax credit was 15%. He lived in a province with a conversion rate for the CPP contribution tax credit of 9.8%.

Emilio will have to pay base CPP contributions of \$5,464.80, calculated as:

•  (((the lesser of (contributory earnings and YMPE)) - YBE) × employee and employer’s contribution rates for base CPP); or
• (((the lesser of (\$82,000 and \$58,700)) - \$3,500) × (95% + 4.95%)).

Emilio will have to pay first additional CPP contribution of \$331.20, calculated as:

•  (((the lesser of (contributory earnings and YMPE)) - YBE) × combined employee and employer’s contribution rates); or
• (((the lesser of (\$82,000 and \$58,700)) - \$3,500) × (0.3%+ 3%)).

Emilio will have to pay base and first additional CPP contributions of \$5,796.00, calculated as:

•  (base CPP contributions of \$5,464.80 + first additional CPP contribution of \$331.20).

Emilio can claim a CPP contribution tax credit on the employee’s base CPP contributions of \$677.64, calculated as:

• (employee’s contribution × (federal + provincial conversion rates)); or
• ((\$5,464.80 ÷ 2) × (15% + 8%)).

Emilio can claim a personal income tax deduction for the employee’s first additional CPP contributions that results in an income tax reduction of \$62.93, calculated as:

• (employee’s contribution × MTR); or
• ((\$331.20 ÷ 2) × 38%).

Emilio will also receive a business deduction on the employer’s portion, which provides a tax reduction of \$1,101.24, calculated as:

• (employer’s contribution × MTR); or
• ((\$5,796.00 ÷ 2) × 38%).

Emilio’s total tax relief will be \$1,841.81, calculated as:

• (tax credit + personal tax reduction + business tax reduction); or
• (\$677.64 + \$62.93 + \$1,101.24).