What is it?

It is essentially a dedicated Retirement Savings program tailored to your individual needs, and providing significantly increased tax-sheltered savings amounts, and improved tax and expense savings.

Who Qualifies to Establish and IPP:

To set up an IPP and become a plan sponsor, your company must be incorporated.

To be an IPP plan member, you must:

• Be an employee or a shareholder of the sponsoring company, and
• Earn “T4 income” (salary that’s reported on your annual T4  statement).
• Generally speaking, those post age 40 would benefit from the larger IPP contributions allowed under the actuarial formula
• Established by a corporation for a controlling shareholder or specified individuals.

Why might you consider an IPP?

•  Significantly greater amounts of accumulated Retirement Savings.
• Business expense deductions for administrative and management expenses related to managing the IPP. This uncovered tax savings can use this freed up money for other beneficial purposes.
• Contributions made to an IPP are Locked-In and cannot be cashed out either during the accumulation phase or upon retirement.
• If set up properly, you can add RSP and other Registered Accounts as voluntary contributions and further add to your business expense deductions.
• For those with long established incorporated businesses and with years of past T4 income, you can add past service contributions potentially going back decades.
• Establish a significant future income splitting pool with your spouse.
• For many independent business owners having an IPP reduces the risk to the business of being the sole source of retirement income. Eliminate the eggs in one basket dilemma.
• All savings are creditor protected.
• Upon Retirement, the return and inflation calculations can be adjusted to reflect a lower investment return in retirement and potentially higher inflation expectations. This can lead to a lump sum topping up of your accumulated savings and thus higher income in retirement.
• Upon the death of you and your spouse, if there are remaining values in your IPP, these are deemed a surplus, and are distributed via the directions in your will. These values are them proportionately taxed in the hands of the beneficiaries, which may result in some potential tax savings.Why you not set up an Individual Pension Plan
• Set up and on-going valuation reporting can be expensive
• All Contributions are Locked-in and subject to the locking in provisions of the appropriate Federal or Provincial jurisdictions rules.
• Provincially registered plans which are transferred out to an individual Locked-in Account, will establish a Commuted Amount which may trigger a surplus calculation which must be transferred out. Doing so may require some forward planning and timing considerations.
• Un-locking is possible for former members of a pension plan, however only after the appropriate jurisdiction approves you application and you satisfy one of the following criteria: Financial Hardship or low expected income, Medical Expenses, Arrears on rent or debt secured on a principal residence, First and last months rent.
• Current members of a pension plan may not un-lock their values.
• If you are a non-resident for Canadian Income Tax purposes for 2 or more consecutive years and not a member of the Pension Plan, your accumulated values can be un-locked.

Establishing an Individual Pension Plan (IPP)

• A record of past employment income that reflects all past year’s income as reported to CRA
• It requires an Actuarial Valuation of available contribution room.
• A Directors Resolution approving an IPP
• A Trustee that can be either a corporate trustee or a Group of 3 individuals with at least one of them independent of the corporation establishing the IPP, depending on the status of the member (connected vs. non-connected) and the applicable pension legislation in your province.
• Your recent Notice of Assessment (NOA) from CRA stipulating to your unused RSP contribution room.
• Business Identity Number issued from CRA

Final Thoughts:

Setting up an IPP while complex is also very flexible. An informed conversation about retirement planning, including future lifestyle details, residency or non-residency in Canada, available funds outside of retirement savings, whether a closely held corporation that will remain within family control, are some of the items the details of which, may beneficially inform the set up of your IPP.

Still Curious?