Ever been hip checked?

by Dawnyca Cristello, CFP (Guest Blogger) May 06, 2019 (Revised May 11, 2019)

Ever been hip checked? Wakes you up, doesn’t it? (For those who have never had the experience, ask someone to give you one. You’ll quickly understand what I mean).

We’d like to wake up all private business owners, all private practices, accountants and tax lawyers.

Pretty much anyone that either:

  • has their own incorporated business;
  • is looking to save taxes, and;
  • wants a “gi-normous” income at semi- or full retirement.

This wake-up call is brought to you by Canadian Pension Legislation, and is registered under the Income Tax Act. Two key dates:

1991 – Income Tax Act registers pension plans for individuals. Namely, the Individual Pension Plan. (IPP)

2014 – The Personal Pension Plan (PPP®) becomes offered across Canada

Some of you may say to yourselves: “this isn’t news”, “I’ve heard of these pension plans for individuals”. And there were changes made by the Fed’s back in the mid- 90s so they ended up not being all that they were supposed to be cracked up to be.

(That change was the Feds freezing indexation of limits applying to pension plans. HOWEVER the govn’t. has recommenced indexing retirement limits, meaning the IPP pension provided has increased. Hooray! And in turn tax deductible contributions have increased. Double Hooray!!)

So, respectfully, everyone should know these basic tax facts by now:

  • PPPs® (Personal Pension Plans) can provide the “richest” pension benefits out there for business owners who have previously depended on saving for their retirement through
    • RRSPs (Registered Retirement Savings Plans); investments inside their corporation;
    • the future (but not guaranteed, and often at a discount) sale of their business, or;
    • future dividend income and income splitting.
  • July 18, 2017 followed by the February 2018 Federal Budget changed a lot of retirement savings planning for Canadian controlled private corporation business owners.

Just ask your accountant! They’ve been scrambling to come up with the best strategies to aid their private owner clients for the 2018 tax season and forward.

  • Tax savings — a priority
  • Retirement savings — a priority
  • Ongoing income options — a priority
  • Income splitting — a priority

The Federal Finance Minister, Bill Morneau, really took a slap shot at the tax planning of private business and was successful at hitting them square between the eyes!

So what does all this have to do with PPPs®?

Simple — these pension plans “built” specifically for incorporated private business owners or private practices can be the answer to many of the “priorities” outlined above as strategies to help business owners get their “peace” back in regards to:

  • Tax savings
    • Pension is corp. owned but plan sits outside the business. All contributions tax deductible.
    • All fees tax deductible (you have no idea, alone, how much this can add up to). Your admin fees, investment mgmt. fees, 1/3rd HST fees, interest charges on loan for the plan if you decide to go this route.
    • Investment growth is deferred until taken as pension income.
  • Retirement savings
    • Double and more compared to any RRSP savings.
    • Allowed to transfer your RRSP into your pension plan if desired thereby immediately save on fees.
  • Ongoing Income Options
    • Dividend earners may now consider T4 income. If so, T4 Income is used as part of the formula to establish a PPP®. There’s your silver lining!
  • Income Splitting
    • In semi-retirement or full retirement with a PPP® you’re allowed to split as early as age 50 pension income with a spouse. And, there are $2000 tax credits each of you can use yearly. Alright!
  • Passive Income
    • These rules were brought in to discourage owners from keeping “too much” (huh?!) invested money in their corporations.
    • The pension plan (PPP®) helps an owner geographically move money out of their companies tax deductible so they have double edged positive results.
      1. Keeps money invested for their retirement on a tax deferred basis.
      2. By moving cash out of company, aids in not triggering the SBD (small business deduction) tax bite known as passive income tax.

So, what to do?

Put your skates on. Take these pension plans for a test run, no charge. Run your own numbers.

Talk to us. Like anything else these plans can run deep with many other benefits and strategies not listed here today. 

Everyone that is an incorporated private business owner or professional should have a look at these. That includes accountants and tax lawyers.

The pension plans for business individuals are truly a hip check experience. Don’t miss out — they are “that effective” in the tax and savings environment we are in today.

Good tidings, 

Dawnyca Cristello, CFP
Business Development & Service, Partner MacDonald MGMT.
Tax Free Exits for Business Owners 416-930-2875
[email protected]

In collaboration with INTEGRIS Pension Management Corp. and Industrial Alliance Professional Services.