IPP

The Individual Pension Plan

The Individual Pension Plan (IPP) is a defined benefit pension plan, set up for a single participant (or 2 if the married spouse is included), which makes maximum use of the provisions of the Income Tax Act (Canada) in order to optimize its retirement income. This plan is intended for entrepreneurs (10% shareholder minimum) and professionals who have incorporated.

It allows for the tax-sheltering of larger amounts than allowed under an RRSP, particularly for members aged 40 and over. The contributions allowed by the IPP become higher than the RRSP contribution limit as the member’s age increases. This RRSP 2.0 contains the most generous provisions permitted by the Income Tax Act (Canada). In other words, the IPP is a much more fiscally efficient savings solution than a dividend-paying RRSP.

The IPP

Who is it for?

Anyone over the age of 40 who falls into one of the following categories:

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Business owners (minimum 10% shareholder)

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Incorporated professionals

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Spouse working for the business may be eligible without being a shareholder

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Key person

The IPP

The advantages

IPPs offer several benefits that you can explore below:

Higher annual contributions than RRSP

Starting at age 40, the contributions allowed by the IPP exceed those allowed by the RRSP, thus, increasing your pension at retirement.

Recognition of past service

It is common for business owners to have not maximized their retirement savings for several years in order to invest in their businesses. This is what makes the IPP even more attractive, as it allows you to contribute for those neglected years. Past service since 1990 can be bought back at the time of implementation, which allows you to make a significant one-time contribution at the time the plan is set up, and thus make up for lost time!

Opportunity to make up for Plan losses

If returns are less than its 7.5% annual return assumption, the company can make up the shortfall. This special contribution is tax-deductible for the company and not taxable for you.

Possibility of pension enhancement at retirement

After retirement, additional tax-deductible contributions can be made by your company.

Tax deduction

Contributions made to the IPP are tax-deductible to the corporation. If funds are borrowed to contribute, then the cost of the loan is also a tax-deductible expense.
All actuarial, administrative and investment management fees of the IPP paid by the corporation are tax-deductible expenses for the corporation.

Exemption from payroll taxes

Health Services Fund (HSF) benefit.

This may facilitate the sale of the business

IPP reduces the shareholders’ equity, contributing to its purification for future sale.

The IPP expense may reduce corporate tax below the Small Business Deduction (SBD) threshold. Recall that the $500,000 threshold for the SBD can potentially be lower if the business generates passive income.