IPPs or Individual Pension Plans are becoming more attractive among business owners and incorporated professionals to minimize corporate taxes, enhance retirement income and creditor protect assets.

1. STRATEGIC TAX PLANNING
Enhance your retirement income using an IPP
An Individual Pension Plan (IPP) is a defined benefit pension plan established by an incorporated company
typically for one individual. An IPP may enable you to make higher tax-deductible contributions than the
maximum permitted for Registered Retirement Savings Plans (RSPs) and enhance your retirement income.
You should consider this strategy if:
n You are a business owner, incorporated professional or key
employee
n You have annual T4 income of at least $116,000
n You are between the ages of 40 and 71
KEY BENEFITS
n Boost your personal retirement savings
n Contributions and expenses are tax-deductible for your
corporation
PLANNING TIP
n With an IPP, you have several retirement income options:
• Receive a pension payment from the plan
• Transfer all or part of the IPP to a registered product
• Purchase an annuity
ADVANTAGES CONSIDERATIONS
n Contribution limits are generally higher than RSP’s n Income splitting in the form of a spousal IPP is not available,
n All contributions are tax deductible by your corporation although your spouse may participate if also an employee of
including: the company
• Contributions for past service, if applicable n IPPs are subject to pension legislation at both the federal
and provincial levels, requiring that their funds be locked in
• Current service contributions
(except in certain provinces)
• Top-up contributions to make up for low investment
n Administration costs, including set-up fees, annual reports
returns
and actuarial valuations that need to be filed every three to
• Terminal funding contributions, if applicable four years
n Related expenses are tax deductible to your corporation n If the plan develops a deficit, your company will be
n IPP assets are generally protected from creditors under responsible for additional funding to maintain registration
provincial pension legislation (except in certain provinces)
n Ability to do succession planning for family members n If the plan develops high levels of surplus, future
working in the business contributions may be limited
n Effective 2007, up to 50% of the qualified pension income n The value of your company will be lower as more money has
received can be split with your spouse for tax purposes been used to fund the IPP
Professional Wealth Management Since 1901

2. STRATEGIC TAX PLANNING
Strategy in action
The issue: Even maximizing your retirement The strategy: establishing an IPP
contributions to a RSP may not provide sufficient Below is a table comparing the available contribution room for RSP versus IPP
income to meet your retirement needs. The IPP at different ages, assuming past service to 1991, $116,667 annual income and an
may allow you to enhance your retirement income RSP transfer of $305,400.
through additional tax efficient contributions.
Maximum Maximum 2007 Maximum past Maximum first year
Most financial planners assume that you will Age in
2007 RSP current IPP service employer tax-deductible IPP
2008
need approximately 70% of your pre-retirement contribution contribution contribution contribution
income to maintain your lifestyle in retirement. 40 $20,000 $21,828 $ 52,960 $ 74,788
Unfortunately, current RSP or Registered 50 $20,000 $26,340 $127,595 $153,935
60 $20,000 $31,778 $217,552 $249,330
Pension Plan contribution limits can make this
70 $20,000 $52,875 $566,512 $619,387
impossible for high income earners.
The following example illustrates how an ideal IPP
Projected values
candidate can increase their retirement savings by
over $1.4 million – while at the same time generating Past Annual Total RSP IPP
Year Age RSP only
service contributions and IPP advantage
significant tax deductions for their corporation.
RSP Transfer $305,400
2008 50 $127,392 $ 26,340 $ 492,097 $ 349,041 $ 143,056
Assumptions* 2009 51 $ 28,320 $ 558,989 $ 396,993 $ 161,996
n 50-year-old male 2010 52 $ 30,442 $ 633,098 $ 449,577 $ 183,521
2011 53 $ 32,724 $ 715,131 $ 507,360 $ 207,771
n Date of hire: January 1, 1991 2012 54 $ 35,176 $ 805,860 $ 570,800 $ 235,060
n IPP effective date: January 1, 2008 2013 55 $ 37,820 $ 906,134 $ 640,395 $ 265,739
2014 56 $ 40,655 $1,016,868 $ 716,682 $ 300,186
n Current and past salaries: $116,667
2015 57 $ 43,702 $1,139,066 $ 800,245 $ 338,821
n Non-spousal RSP available for transfer 2016 58 $ 46,977 $1,273,825 $ 891,715 $ 382,110
2017 59 $ 50,508 $1,422,351 $ 991,775 $ 430,576
n Investment rate of return 7.5%
2018 60 $ 54,293 $1,585,942 $1,101,164 $ 484,777
n Salary increases at 5.5% 2019 61 $ 58,362 $1,766,020 $1,220,683 $ 545,337
2020 62 $ 62,736 $1,964,140 $1,351,197 $ 612,943
*Not all assumptions are provided in this simplified illustration.
2021 63 $ 67,451 $2,182,008 $1,493,643 $ 688,365
2022 64 $ 72,507 $2,421,457 $1,649,033 $ 772,424
2023 65 $ 54,441 $2,660,171 $1,818,462 $ 841,709
2024 66 $ 58,521 $2,921,021 $2,003,115 $ 917,906
In conclusion, for this ideal client, 2025 67 $ 62,919 $3,205,998 $2,204,271 $1,001,727
an IPP increases the tax-sheltered 2026 68 $ 67,635 $3,517,241 $2,423,315 $1,093,926
retirement savings by a minimum 2027 69 $ 72,704 $3,857,086 $2,661,742 $1,195,344
of $1,429,637. 2028 70 $ 78,153 $4,228,073 $2,921,169 $1,306,904
2029 71 $ 84,027 $4,632,978 $3,203,341 $1,429,637
Professional Wealth Management Since 1901
This report is not intended as nor does it constitute tax or legal advice, is provided for illustrative purposes only and may not be suitable for your personal financial circumstances
or objectives. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. The information in this report is not
investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor and your accountant, tax advisor or legal
counsel, as applicable. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information and tax rules. The
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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
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