Does a sole proprietor have to pay CPP contributions in Ontario?

Yes. Self-employed individuals — including sole proprietors — must pay both the employee and employer portions of Canada Pension Plan (CPP) contributions on their net self-employment income. This is sometimes called the self-employment contribution rate, and it is effectively double the employee rate because there is no separate employer to pay the employer's share.

The contributions are calculated and paid when you file your personal income tax return. Unlike employees, who have CPP deducted from each paycheque automatically, self-employed persons account for CPP on their T1 return. If the amount owing is large, the CRA may require quarterly income tax instalments, which include estimated CPP amounts.

The maximum earnings on which CPP contributions are assessed (the yearly maximum pensionable earnings, or YMPE) and the contribution rate are set federally and adjust annually. The CPP enhancement that has been phased in means self-employed persons may also contribute to the expanded CPP on earnings in the second earnings ceiling range.

CPP contributions as a self-employed person entitle you to CPP retirement benefits when you retire, disability benefits, and survivor benefits for your family. If you prefer a different retirement strategy, consulting a financial planner before deciding to incorporate (which changes how CPP is handled) is sensible.