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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert

By Robyn K. Thompson  | Monday, October 30, 2017

Q – I’m the owner of a successful small business. I’ve been following the attempts by the Liberal government to change some of the tax rules governing incorporated small businesses, but I haven’t seen a lot written about how this would affect Individual Pension Plans. With my RRSP maxed out, I’ve been thinking seriously about an IPP, but now I’m not so sure. What’s your opinion? – Tom L., Toronto, Ontario

A – Given the controversy surrounding the proposed tax changes regarding Canadian Controlled Private Corporations (CCPC), as well as the possible conflict of interest that Finance Minister Bill Morneau finds himself in, there’s definitely been a lot of uncertainty among executives, business owners, and professionals about the tax benefits of incorporation. But one item that remains untouched (so far) is the Individual Pension Plan (IPP). It’s still an excellent way to considerably boost your retirement nest-egg if you own a CCPC.

Designed mainly for high income earners who have incorporated businesses or professional corporations that they use to draw a salary, and IPP is like a group pension plan, but one that’s designed specifically for individuals. If you’re a professional, executive, or business owner, and you’ve maxed out your Registered Retirement Savings Plan (RRSP) contribution room and (in the case of executives) any employer pension contributions, then an IPP might be the right solution for enhancing your retirement income stream.

IPPs can be set up for an employee of the business, which can sponsor the plan. This can be beneficial if a spouse or other family members are employed as part of an incorporated family business. Note, though, that there is no such thing as “spousal” IPP – which is not allowed – so no income splitting is possible.

Like a Registered Retirement Savings Plan, an IPP is an investment account that accumulates over time to provide retirement benefits. The difference is that the IPP provides certain guarantees. In addition, any amounts you contribute are locked in until you retire – you cannot “collapse” an IPP as you can with an RRSP if you are really short of cash. And like a regular pension plan, IPP contributions are determined by actuarial calculations to provide sufficient income at retirement, and this income is generally greater than that available from RRSPs. From a business standpoint, IPPs are also attractive, because plan assets are 100% creditor-proof.

Key benefits

In terms of longer-term retirement savings, for a business owner or executive over 40, an IPP allows for larger tax deductions than RRSPs – and up to 65% more in contributions into your retirement account. An IPP can be set up until age 69, and contributions can be made for past service, dating back to 1991, all of which are deductible immediately or amortized for as long as 15 years.

In addition, unlike RRSPs, where contributions limits are predetermined, contributions to an IPP can increase with your age. And IPP contributions are deductible to the company if made a within 120 days after the corporate fiscal year-end, unlike RRSPs, where contributions for a given year are deductible for only 60 days after the calendar year-end. Note also that IPP fees and costs, including interest on funds borrowed to contribute to an IPP, are deductible to the corporation.

Moreover, if you have no RRSP contribution room left, an IPP is an excellent way to increase retirement assets and have your company make large tax-deductible contributions. An IPP also allows a significant tax-deductible contribution at retirement.

As a defined benefit pension plan, Individual Pension Plans operate with stricter investment rules and limitations than either RRSPs or TFSAs, and provide pre-determined retirement benefits. You know what you’ll be getting, and payouts can be robust.

If the rate of return on IPP assets is less than 7.5% a year, an IPP allows for additional tax-deductible contributions to be made by the company. Pension plan surpluses belong to the member. And there’s no deemed disposition of plan assets on death of the planholder, making it a powerful estate-planning tool.

As true defined benefit pension plans, Individual Pension Plans are federally regulated and are technically complex, requiring special expertise in set-up and administration. This is definitely not a do-it-yourself process. You’ll need the help of a qualified IPP specialist to guide you through the steps of setting up an IPP. – Robyn

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at for a confidential planning consultation.

Notes and Disclaimer

© 2017 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

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