WHAT IS AN IPP?

An IPP is a designated defined benefit pension plan providing greater tax deferred contributions than those available through a Registered Retirement Savings Plan (RRSP). For individuals over age 40, annual IPP contributions are higher than an RRSP. An IPP is subject to the provisions of the Income Tax Act which govern defined benefit pension plans, and in most provinces (except Quebec), are subject to the same provincial regulations. The Income Tax Regulations outline special funding limitations for defined benefit pension plans which provide benefits for 10 or fewer employees, most of whom are highly paid. Highly paid is defined as 2.5 times the Year’s Maximum Pensionable Earnings (YMPE), or about $100,000 per annum.

WHO QUALIFIES FOR AN IPP?

An IPP is a designated plan typically established for an individual business owner. However, in some situations, a company may have more than one employee where a defined benefit plan is appropriate. Under these circumstances, a combined plan may be more suitable. Husband and wife situations, for example, are ideal for a two person designated plan.
 

IPP ADVANTAGES:

• For employees over age 50, the annual maximum contribution is at least $6,000 higher than the maximum contribution for an RRSP.
• Pension benefits are protected from creditors under pension legislation.
• Unreduced early retirement benefits, bridge benefits and indexing can be provided.
• Contribution amounts increase with age. If past service is being provided and the individual has contributed to an RRSP since 1990, they must transfer RRSP funds to the IPP. The company then pays the balance of the cost to provide for past service after 1990.
• In certain situations, it may be possible to provide benefits prior to 1991. The value of the pre-1991 benefits for connected* persons cannot be greater than the value of pre-1991 benefits for non-connected persons.
• IPP contributions and expenses are fully tax deductible to the business. These deductions could reduce corporate profits, or can be used to decrease the amounts required to be withdrawn as bonuses to bring the corporation in line with lower tax rates that are applicable to small business income.** If the company borrows or amortizes the past service cost, interest charges are also deductible.
   

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