Many business owners and incorporated professionals have heard the rumblings and are wondering what is happening with Individual Pension Plans. The Ontario Government has recently made changes to the Pension Benefits Act which have suddenly made the IPP a much better weapon in your arsenal to save for your retirement.
IPPs Just Got a Lot Better
What’s going on with Individual Pension Plans? What are the changes that have occurred? What does it mean for you as a business owner? and How can it help you save more for retirement?
IPPs are like an Ontario Teachers Pension Plan for business owners and incorporated professionals, with higher T-4 income, which are an excellent strategy to combat punitive taxation & bolster retirement savings. Yet, for the approximately 1.2 million SMEs in Canada, there are only about 13000 IPPs in existence. Why so few?
Well, up until recently, IPPs have had rigid minimum funding requirements resulting in a lack of flexibility when making contributions, along with high admin cost and red tape. Now, all that has changed.
IPPs just got a lot better and have effectively mutated into super-sized RRSPs, that allow contributions from your corporation, that are tax deductible.
Ontario, has recently amended the Pension Benefits Act (PBA) as part of a program to reduce regulatory burden and red tape under Bill 213, Better for People, Smarter for Business Act, 2020.
Flexibility and Simplicity
Bill 213 amends the PBA to permit individual pension plans (IPPs) and designated plans to be exempt from the PBA, its regulations and FSRA’s regulatory oversight. Exempt plans no longer required to follow the PBA’s requirements to register the plan, file actuarial valuations, fund the plan or complete annual filing requirements.
With this exemption, the Ontario Government has made it flexible so that your business has the freedom to decide when to make contributions. This allows you to skip years of contributions, to accommodate lean years.
This applies to “connected persons” that own greater than 10% for the exemption of an individual pension plan or designated plan if the employer files an election to be exempt and if certain other conditions are satisfied. All such plans established before December 8, 2020 are automatically exempt, and prior existing plans must submit Election and Consent forms.
With these changes, companies are able to defer deductions while reducing the cost and regulatory burden.
So, there are no more $750/year filing fees & The IPPs are exempt from FSRAs rules.
The negatives are: 1) You still have to get an (initial) actuarial valuation, and the exempt plan loses its creditor protection.
Ontario now joins Alberta, British Columbia, Manitoba and Quebec in freeing up regulatory requirements for IPPs.
IPPs Unchained
So, the IPP is now an excellent wealth & retirement planning strategy for business owners and incorporated professionals.
As a result of the changes, IPPs in Ontario, with their superior tax treatment and greater contribution room vs. RRSPs, have just become completely flexible, cheaper and easier to administer. This has breathed new life into IPPs, which are now a whole different animal!
IPPs just got a lot better and have effectively mutated into super-sized RRSPs, that allow contributions from your corporation, that are tax deductible.
So, I would encourage you to talk to your accountant or tax, trust & estate planner, to see whether this wealth planning strategy might be right for you.
E. & O. E.