IPPs can be utilized by business owners to provide an alternative to RRSP contributions.  In many cases, IPP contributions can be substantially higher than RRSP contributions - sometimes more than double the amount [For 2005 the maximum RRSP contribution is $16,500].  The terms of an IPP plan are definitely less flexible than an RRSP however many business owners have found that the benefits associated with these plans far outweigh the associated costs and limitations.

 Selected IPP Issues to consider:

1. It is important to remember that an IPP (i) is an actual pension plan, (ii) requires annual government filings and assistance from pension consultants, (iii) represents a firm and ongoing liability for your company – payments must be made irrespective of any cash flow limitations.
2. IPPs require an actuarial assessment pension analysis.
3. Allows for previous years catchup payment – for back to 1991
4. Funded by your corporation [must be active corporation – not a holdco etc.]
5. Maximum withdraws of up to $70K per year starting at age 55 [although funds can be drawn early in cases of critical illness or other such calamity].
6. IPPs are creditor proof – an excellent feature.
7. Borrowing to fund your IPP is tax deductible.
8. These are “Defined Benefit Plans” and must grow at 7.5% per year.
9. The annual contributions under this plan effectively eliminate the employee's ability to make RRSP contributions.
10. Professional fees of approx. $3-4K per year.

 Sample IPP

• Entrepreneur who is 55 years old
• Annual T4 of $100K since 1991
• Lump Sum initial contribution of approx. $125K
• Annual contributions thereafter of approx. $26K
• Contribution till you are 65

After 10 years, total principal contributions of $385K, earnings of say $115K, total balance at age 65 of approx. $500K.

Notice to Reader

Please note that the above information is a summary only.  The specific taxation issues affecting each taxpayers situation are unique and should be investigated on a case by case basis.  Please contact Canham Rogers, Chartered Accountants to review your situation prior to implementing any of the strategies or transactions noted above.