Individual Pension Plans (IPPs) for Ontario Business Owners

An IPP is a defined benefit pension plan, registered with the Canada Revenue Agency, that your corporation sets up for you, and sometimes for family members who work in the business. Your company makes the contributions and deducts them as a business expense. The money is held in a separate pension trust, not on the company's books, and grows tax-deferred until you draw it as retirement income.

Your RRSP limit is the same whether you're 40 or 60. A pension works the other way. An actuary calculates how much needs to go in today to fund the pension you've earned, and because an older owner has fewer years for the money to grow, the allowable contribution rises with age. For many owners in their 50s and 60s, that means the company can put in noticeably more each year than an RRSP would allow.

There's more to it than annual contributions:

• Past service: You may be able to fund years you've already worked for your company, back as far as 1991, which can create a sizeable one-time contribution. Part of your existing RRSP may need to be transferred in to make this work.
• Top-ups: If the plan's investments earn less than the assumed return, the company can make additional deductible contributions to make up the difference.
• Retirement enhancements: When you retire, the plan can be enhanced with benefits like an earlier unreduced pension or fuller indexing, often funded with one more deductible contribution. This can pair well with the year you sell your business.

An IPP tends to work best when most of these are true:

• Your business is incorporated
• You're 40 or older, and the advantage generally grows from 50 on
• You pay yourself a T4 salary, ideally a healthy one, and have for years
• You already max out your RRSP
• Your company has steady, reliable cash flow
• You won't need the money before retirement

It's probably not the right tool if you pay yourself only in dividends, your cash flow is unpredictable, or you're under 40. In those cases, an RRSP or another strategy may serve you better, and we'll tell you so.

An IPP isn't free, and it isn't flexible. There are setup and ongoing administration costs, including regular actuarial valuations. The company is expected to keep funding it. You can't dip into it before retirement. And contributions reduce your RRSP room. For the right owner, the extra room and deductions outweigh all of this. For others, they don't.

We start with a quick screen. If it looks promising, we work with specialist actuarial partners to prepare a personalized comparison of an IPP versus your RRSP, usually at no cost to you. We bring your accountant in early, coordinate the setup, and stay your main point of contact.