How to Read Your CAF Pay Statement

Jake - Wealthy Corner Author/Founder

Jake - Wealthy Corner Author/Founder

Hi, I'm Jake. I help people under 40 reduce money stress and grow wealth.

You only see ~60 to 70% of your pay hit your bank account. Learn where your money is going, and estimate deductions for taxes, the CAF Pension, CPP and EI.
No one taught me how to read my pay statement. I had no clue about taxes, the pension or CPP and EI. All I knew was that only 70% of my salary hit my bank account. Most CAF members will see a similar amount of pre-tax income hit their bank account, roughly 60% to 70% of your pre-tax income. The exact amount depends on your income. That’s over 4 months of your work that is removed from your pay. You work hard for your money (insert enlisted vs. officer joke here). So you should know where your money is going. Especially if you’re going to spend 25 years in the CAF. In this post, we will learn about the money deducted from our pay. By the end, I want you to be well aware of where your income is going. I’ve included the spreadsheet I use to categorize all deductions – you can access it at the end of the post. 

Table of Contents

Top of the CAF Pay Statement

This Pay Statement Description outlines the top of your pay statement, as per the snip below. This is a good resource to understand items A thru M, however it does a bad job at describing the money removed from your pay – your deductions. 

CAF Pay Statement - Top Portion
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CAF Pay Statement Deductions

Money that is removed (deducted) from your pay are called “Deductions”. There are four major deductions:

  1. Taxes (Federal and Provincial);
  2. Military Pension – Called “Superannuation”;
  3. Canadian Pension Plan (CPP); and
  4. Employment Insurance (EI).
This snip shows you where each major deduction is located on your CAF pay statement via the red boxed labelled 1 thru 4. 
CAF Pay Statement, Deductions

Here is a summary of the amount removed from your pay for each specific deduction. These amounts are for 2021, and are represented as a fraction of your annual pre-tax income. 

DeductionAmount for 2021

1.      Taxes (Federal and Provincial)

2.      Military Pension – “Superannuation”

  • 9.83% of your income up to $61,600
  • 12.26% of your income over $61,600
  • Source

3.      Canadian Pension Plan (CPP)

  • 5.45% of your first $61,600
  • CPP contributions are capped at $3,166/yr
  • Source

4.      Employment Insurance (EI)

  • 1.58% of income
  • EI contributions are capped at $890/yr
  • Source

Year to Date Period

The “Year to Date” (YTD) row on your pay statement tells you the total amount paid between 01 Jan and the statement date. You can see the YTD amount for Taxes, Pension, CPP and EI. You’ll only see these YTD numbers show up on your mid-month pay statement. 

You may be used to the Fiscal Year (FY) ending 31 March. The tax year is different. It’s a normal calendar year, starting on 01 January and ending 31 December.

CAF Pay Statement, Year to Date

Deduction of Taxes

Both provincial and federal income taxes are automatically deducted from your pay. These monthly and YTD amounts are gracefully displayed under Federal tax column.

But note that federal and provincial tax are not broken down independently on the statement. The value in the “Federal Tax” column includes both your provincial and federal taxes. I’m not sure why these values are not broken out separately, the columns for provincial taxes exists. Why not use it?

How Much Tax Do I Pay?

Your tax rate and the total amount of tax owed depends on your income.

You are taxed under a “Progressive” tax system. Kahn will describe this system well in the embedded video. Kahn is great  – he taught me first-year engineering. 

You will forfeit ~30% or more of your income towards this system over your career. That’s good incentive to learn about the system. 

Different income brackets are taxed at different rates under the progressive tax system. These brackets exist for provincial and federal taxes. The specific rates for the provincial and federal tax brackets can be found here. Alternatively, you can find total taxes paid, average tax rate and marginal tax rates with calculators like this one.

Understanding taxes helps you preserve wealth. This is especially important if you are investing and have maxed the TFSA. Read this post to learn more about how taxes apply to investment income. 

How the Pension Affects Tax Deductions

You contribute pre-tax income to the pension. Your military pension contributions therefore reduce your “taxable income”.  This can be confusing – I’ll show through example. You can also find your taxable income via the CAF Income Calculator below.

Let’s say you make $60,000 and it’s 2021. You contribute 9.83% of your income to the pension plan, or $5,898. So, you pay tax on $54,102, not $60,000. Taxable Income = $60,000 – $5,898 = $54,102. 

Military Pension – Superannuation

The amount in the “Superannuation” column is what you pay into your military pension.

The pension is a form of forced savings – money is automatically removed from your pay and invested into stocks and bonds by the Public Sector Pension Investment Board. This is great – it forces you to save and invest, mitigating the requirements for self-discipline.

Plus, you don’t have to worry about investment risk, as the defined pension benefits are nearly guaranteed. This annual pension amount that you will receive in retirement, if you have at least 25 years of service (YOS), equals:

(Average of best 5 years of pay) x (2%) x (# years of service)

For those with 25 YOS, your pension will equal 50% of your best five years of pay. All of this is described in the Canadian Forces Superannuation Act (CFSA). I’ve read some boring stuff. The CFSA takes boring to another level.

How Much Do I Put Towards the Pension?

You put between 9.83% to 12% of your pre-tax income towards the military pension. There are two different rates depending on your pay – it’s a two tiered system.

Contribution rates for the two tiered system can be found in Table A of this link. I’ll keep the pension contribution rates up to date for future years in the CAF Income Calculator below, and in the table above.

Finally, you can find the total annual amount that you’ve contributed to the pension at the end of each year in Box 20 of your T4.

Canadian Pension Plan (CPP) Deductions

The Canadian Pension Plan (CPP) provides a pension to all Canadians as early as age 60, but the standard age is 65. You can read more about it here.

All military members contribute to the CPP. It forms a core piece of your military pension. Remember the expected pension payment I talked about above? That amount includes CPP payments. 

So, to be extra clear, you do not receive CPP on top of your military pension. Rather, CPP payments form part of your military pension. The CPP payments make up part of that 50% of your best five years of pay. 

So, I view my total pension contributions for the future as follows: 

Total Pension Contributions = CPP Contributions + Superannuation Contributions.

How Much Do I Put Towards CPP?

You contribute 5.45% of your income to CPP up to $61,600 of earnings. Once you hit $61,600 of YTD earnings, your CPP deductions will stop.

At this point, you can expect your take-home pay to increase by ~$260/month because you are no longer making CPP payments. 

Employment Insurance

Employment Insurance (EI) covers you if you’re unemployed through no fault of your own. Although it’s unlikely for military members to be unemployed, EI serves a role during PATA or MATA leave.  This is a complex policy that I am not comfortable describing. I do know that your pay during MATA/PATA consists of a mix of EI and CAF benefits.  

You can read more about the EI portion of PATA leave here. Your base should have a PATA clerk that can sort you out when you become a mom or dad. 

CAF Income Breakdown Sheet

This Google Sheets income breakdown sheet allows you to punch in your income from the Canadian Forces Pay Scales. It will spit out your CPP, EI and Pension contributions, plus a graph (with colours).

It also helps you find the breakdown of federal and provincial taxes paid. 

I use this tool for planning. I can estimate after-tax income for future years. It also works when we get retroactive pay, like 2017 and 2021. Finally, it helps me decide how much I should contribute to the RRSP. For most CAF members, RRSP contributions only make sense once the TFSA is maxed.

In my post 8 Money Metrics for Canadians, you will see that I stress the after-tax savings rate as the most important money metric. To find this, you need your after-tax income. I get both of these numbers from this spreadsheet.

Conclusion

Great, now you better understand the four largest deductions, so you know where your money is going:  

  1. Taxes (Federal and Provincial);
  2. Military Pension – Called “Superannuation”;
  3. Canadian Pension Plan (CPP); and
  4. Employment Insurance (EI).

I view CPP and superannuation as money that I will get back, if I live.

The CAF Income breakdown sheet can help you estimate after-tax income in future  years. But note that rates for taxes, pension, CPP and EI are unpredictable. The best we can do is estimate based on 2021 rates.

Finally, you can find all these deductions on your T4. The T4 can be checked in EMMA when it arrives in February. Here, you can find the actuals for each of the major categories described. I’ll do a post on the T4, eventually.

Leave a comment if you have questions.

Snip of CAF Income Calculator

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