Introduction

Canada Pension Plan contributions are one of the more misunderstood costs for physicians who pay themselves salary through a professional corporation. The mechanics are different from an employed physician — and the retirement implications of CPP decisions made over a career compound significantly.

How CPP Works for an Employed Physician

A physician employed by a hospital, clinic, or health authority is treated as any other employee for CPP purposes. The employer withholds the employee's CPP contribution from each paycheque (approximately 5.95% of pensionable earnings above the basic exemption, up to the Year's Maximum Pensionable Earnings, or YMPE) and matches it with an employer contribution. The CRA receives both halves.

The employed physician builds CPP entitlement based on their pensionable earnings over their working years.

How CPP Works for a Physician Paying Salary From a Corporation

When a physician pays themselves salary from a professional corporation, the corporation acts as the employer. The corporation withholds the employee (physician) portion of CPP from the salary payment — and also contributes the employer portion on top of that.

The combined CPP contribution — employee and employer — is effectively borne by the physician, because the employer portion is a cost of the corporation that the physician ultimately funds.

In 2026, the maximum combined employee and employer CPP1 contribution is approximately $7,735 per year (varies slightly based on the final YMPE). CPP2, the enhanced second component introduced in 2024, adds a further contribution at higher income levels.

This means paying salary from a professional corporation that includes CPP contributions costs the physician both halves — a total of approximately $7,735 annually in CPP1 contributions (plus CPP2 if applicable), in addition to the salary itself.

Physicians Who Pay Dividends Only: No CPP

A physician who pays themselves exclusively in dividends pays no CPP contributions. Dividend income does not generate CPP entitlement.

This is a cash saving — the combined CPP contribution is not incurred. But it also means no CPP retirement benefit accrues. A physician who has paid only dividends throughout their incorporated career will receive no CPP in retirement (beyond whatever was accumulated during pre-incorporation years as an employee or self-employed individual).

The Value of CPP in Retirement

Whether CPP is worth the combined cost depends on how long the physician lives and what return they could otherwise earn on those contributions. The CPP is a defined benefit arrangement — the benefit is indexed to inflation and paid for life. For a physician who lives into their 80s and 90s, the lifetime value of maximum CPP benefits is significant.

The maximum CPP1 benefit for a physician who has maximised contributions throughout their career and begins receiving CPP at age 65 is approximately $1,364 per month in 2026 (adjusted annually). Over 20 years of retirement, this represents over $325,000 in indexed, guaranteed income. The incremental CPP2 benefit adds further to this.

For physicians who have other retirement income sources — RRSP/RRIF, corporate investment portfolio, real estate — the question of whether the CPP cost is worth the CPP benefit is a genuine planning question, not one with a predetermined answer.

RRSP Room: A Related Consideration

As discussed in Article 1, salary generates RRSP room at 18% of the prior year's earned income (up to the annual RRSP limit). A physician who pays no salary receives no RRSP room on the dividends drawn. Physicians who have been incorporated for many years and have paid only dividends may have exhausted their available RRSP room from pre-incorporation earnings and now have no mechanism to generate new room.

The decision to pay salary — even partially — is therefore not just a CPP decision. It is also an RRSP strategy, a retirement accumulation decision, and a personal tax planning tool.

When to Speak With a CPA

The CPP, RRSP, and dividend planning decisions for an incorporated physician interact in ways that reward explicit annual review. The right compensation mix changes over a career as income levels, personal circumstances, and retirement planning goals evolve.

Rotaru CPA works with physicians on compensation planning across the arc of an incorporated practice — from the first year of incorporation through retirement. Book a consultation to review your compensation strategy.