Page 20 - INSIGHT MAGAZINE_July 2025

ADVERTORIAL
DOLLARS & SENSE

Individual Pension Plans something to

consider as your Retirement Vehicle

Want to put money aside for your retirement and increase tax savings Since an IPP is a separate legal entity for tax purposes, funding to
too? The answer, most people would say, is a Registered Retirement the IPP can reduce the amount of passive assets in your corporation
Savings Plan. Not necessarily. For some business owners, the better potentially allowing your corporation to continue to benefit from the
solution might be an IPP – Individual Pension Plan. Especially for small business deduction. Setting up an IPP can help you remove
those living in Ontario. surplus assets from the corporation before the sale happens. This may
qualify for the Lifetime capital gain Election in the event you sell the
Nothing wrong with the first option, but an IPP is a way to potentially shares of your corporation.
contribute more money on a tax-sheltered basis – and sometimes
substantially more – than the maximum allowed for The provincial government in Ontario made some
RRSPs. attractive changes to IPP’s in 2019 which considers some
plans fall outside of the Pension Benefit Act. Due to this
IPP’s are an ideal vehicle for the self-employed, or for change it allows companies to defer contributions in cash
incorporated professionals, and senior executives. In crunch situations as well as allowing for no mandatory
today’s environment it can also be an attractive tool to Locked in component upon retirement. Making IPP’s
retain talent. even more attractive for those companies operating in
Ontario.
IPPs, sanctioned by the Canada Revenue Agency, define
the pension benefit in advance based on income and years IPP’s are not used as often as RRSP’s however, they
of service. An actuarial formula is used to calculate are once again growing in popularity. They do require
annual contributions funding the pension benefit. These Erica Tennenbaum, CFP, FCSI ongoing commitment from the corporation and require
plans are most advantageous for people aged 40 and Vice President & Wealth Advisor maintenance due to the Mandatory funding requirements
older, who are earning over $100,000 a year on their T4, under pension legislation which the corporation needs to
and who’ve been maxing out their RRSP contributions. be sure those are met. Funds no longer belong to corporation once the
transfers to the IPP are complete – they become the plan members and
All IPP contributions made by a corporation on behalf of an individual cannot be transferred back.
are fully tax-deductible to the corporation. For the individual, an
IPP is treated as a non-taxable benefit. Which means tax savings An IPP may need to be wound up if corporation is sold and could also
all around. As an IPP member, you must have earned employment transfer to family if that is the succession plan of the business.
income in past years from sponsoring corporation to be credited
with service years which occurred prior to the establishment of an In summary IPP’s provide for a very attractive opportunity and
IPP. A senior executive having worked with your corporation can be perhaps not for everyone, it is certainly an attractive option to discuss
rewarded with this opportunity. with your Tax and Investment professionals.

However, keep in mind past service would not include operating your If you would like more information about the IPP strategy please
business as a sole proprietor or partnership. email or call our office for more information.

There are many other benefits. Some of which include, setup,
maintenance, and management fees are tax-deductible to the
corporation. And, in some cases, companies can make additional
contributions for past service, as far back as 1991.

This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest
available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness.
This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information
suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate
entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence.
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