TaxTips.ca - Individual Pension Plans (IPPs)

TaxTips.ca Canadian Tax and Financial Information	Individual Pension Plans (IPPs)	TaxTips.ca does not research or endorse any product or service appearing in ads on this site. Before making a major financial decision you should consult a qualified professional. Copyright © 2012
Looking for US tax information? See USTaxTips.net

Revise your listing in the TaxTips.ca Business Directory.

Need an accounting, tax or financial advisor? Look in the TaxTips.ca Business Directory.

Financial Planning -> Pensions -> Registered Pension Plans (RPPs) - Individual Pension Plans (IPPs)

Individual Pension Plans (IPPs)

Income Tax Regulations s. 8515

	This is a type of defined benefit pension plan, governed by provincial pension legislation.
	Each IPP must qualify for registration as a pension plan under the Income Tax Act.
	IPPs are beneficial for high income (typically over $100,000) owners of incorporated businesses and senior corporate executives.
	Allowable contributions are normally much higher than RRSP limits.
	Contributions are based on age, employment income, and actuarial calculations.
	Each plan usually benefits one employee, not a group of employees.
	Contributions to an IPP reduce or eliminate the allowable RRSP contributions of the employee.
	Contributions and administrative fees are deductible expenses for the corporation.
	Interest on money borrowed to fund contributions is tax deductible for the corporation.
	Contributions may not be made to an IPP for a spouse, but if the spouse works for the same employer, they could be added to the plan. Due to the recent federal government announcement regarding pension income splitting, this is less important.
	The assets of the IPP are locked in until retirement.
	Setup and ongoing administrative fees are high.

Individual Pension Plans can accept transfers of funds from a prior registered pension plan (RPP). If the IPP is set up primarily for the purpose of the transfer from an RPP, it is essential to establish in advance that the IPP will qualify for registration under the Income Tax Act. Improper planning in this area could result in the IPP having its registration retroactively revoked after a period of years. This would result in the assets of the plan becoming taxable. There is information on this topic in the Canada Revenue Agency (CRA) frequently asked questions for registered plans administrators.

In 2005, CRA retroactively revoked the registration for two IPPs which were established in 1999 and 2000 and to which funds were transferred from defined benefit pension plans. The Federal Court of Appeal upheld the CRA position in 2007 court cases. The cases are:

1346687 Ontario Inc. vs MNR, and

Jordan Financial Limited vs MNR

Tax tip: Get professional advice to determine if an IPP would be beneficial for you or your high income employees.

Revised: November 02, 2010

The information on this site is not intended to be a substitute for professional advice. Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage.
See our Business Directory for tax, accounting and finance-related firms in your area.
Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site.