No one taught me how to read my pay statement. I had no clue how taxes, the pension, CPP, and EI affected my pay. All I knew was that only 70% of my salary hit my bank account.
Most CAF members will see roughly 60% to 70% of pre-tax income hit their bank account on payday. The exact amount depends on your income. That’s about 4 months worth of income that goes “somewhere” other than your checking account.
This post will define that “somewhere”.
You work hard for your money (insert enlisted vs. officer joke here).
It’s nice to know where your money is going. This post exists to help you do that.
I’ve included a Google Sheets CAF Income breakdown tool. It can be accessed at the end of this 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 Deductions
Money that is removed (deducted) from your pay are called “Deductions”. There are four major deductions:
- Taxes (Federal and Provincial);
- Military Pension – Called “Superannuation”;
- Canadian Pension Plan (CPP); and
- Employment Insurance (EI).
Here is a summary of the amount removed from your pay for each specific deduction. All amounts are represented as a fraction of your annual pre–tax income.
| Deduction | Amount for 2023 |
1. Taxes (Federal and Provincial) |
|
2. Military Pension – “Superannuation” |
|
3. Canadian Pension Plan (CPP) |
|
4. Employment Insurance (EI) |
|
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.
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Tax Deductions
Both provincial and federal income taxes are automatically deducted from your pay. These monthly and YTD amounts are gracefully displayed under “federal” tax column at the left.
Note that federal and provincial tax are not broken out seperately 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. It’s just not used.
How Much Tax Do I Pay?
Your tax rate and the total amount of tax owed depends on your income.
That’s becuase you are taxed under a “Progressive” tax system. This system is described well in the embedded video.
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. I cover this topic in more depth in my guide on taxes for Canadians.
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, so I will use an example.
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.
Taxable Income = $60,000 – $5,898 = $54,102.
You pay tax on $54,102, not $60,000.
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, meaning money is automatically removed from your pay and invested by the Public Sector Pension Investment Board.
Your pension is mainly invested in stocks and bonds.
Skimming money off your pay is a good thing. It forces you to save and invest, mitigating requirements for self-discipline.
Plus, the government absorbs the 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).
The CFSA is next level boring. This is coming from someone who can read DAODs with ease.
How Much Do I Put Towards the Pension?
You put between 9.3% to 12.9% of your pre-tax income towards the military pension.
It is a two tiered system. In 2023, only 9.3% of your pay is skimmed off your pay for earnings up to $66,600.
Then, you pay 12.9% on all earnings above above $66,600.
Table A of this link shows contribution rates for the two-tiered system.
To estimate your pension contributions in a given year, you can use my CAF Income Calculator below.
How Good Is The Pension?
The pension is incredible compared to what you would get if you invested your contributions.
I crunched the numbers, and you would require a risk-free compounded return of 15% to match the pension.
For more, check out my detailed comparison of the CAF pension to a self-investing scenario using index funds.
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.
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? For example, 50% of your best five years for a 25-year career?
For example, you retire with $100k/yr in your best 5 years. Your 50% pension is 50%, or $50k/yr.
CPP forms part of this $50k/yr.
So, to be extra precise, you do not receive CPP on top of your military pension. Instead, CPP payments form part of your military pension.
How Much Do I Put Towards CPP?
In 2023, you contribute 5.95% of your income to CPP, up to $66,600 of earnings.
Once you hit $66,600 of YTD earnings, your CPP deductions stop.
At this point, you can expect your take-home pay to increase by ~$260/month. You are no longer making CPP payments. CPP will kick in again next Calendar Year.
Employment Insurance
Employment Insurance (EI) covers you if you’re unemployed through no fault. 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 know 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
Check out this Google Sheets income breakdown. Just punch in your income from the Canadian Forces Pay Scales.
It will spit out your CPP, EI and Pension contributions.
It also helps you find the breakdown of federal and provincial taxes paid.
Retroactive 2023 Pay
I updated the calculator so that you can calculate your 2023 backpay. For more info on the backpay, check out this post on the subject.
With finances, planning is essential. This tool helps me estimate after-tax income for future years. It also works when you get retroactive pay, like 2017, 2021 and 2023.
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.
Conclusion
I hope this helped you better understand where your income goes, by understanding the four largest deductions:
- Taxes (Federal and Provincial);
- Military Pension – Called “Superannuation”;
- Canadian Pension Plan (CPP); and
- Employment Insurance (EI).
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 I can do is an estimate based on the present-day rates.
Finally, you can find all of the actual deductions on your T4 once the tax year ends.
The T4 can be checked in EMMA when it arrives in February. The T4 is the place to go to find the actuals for each of the major categories over the last calendar year.
Leave a comment or shoot me an email at jake@wealthycorner.com if you have questions.
2 thoughts on “How to Read Your CAF Pay Statement”
Very informative material and does a great job in breaking down and describing the CAF pay statement.
Thanks. Glad you found it helpful.
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