– 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.
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
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
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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.