How an Individual Pension Plan (IPP) Can Save Canadian Business Owners Thousands in Taxes

Since 2017, being a Canadian business owner has become more challenging.

Taxes are higher, income-splitting rules have tightened, and passive income is taxed more heavily than ever before. The old tax breaks just don’t offer the same benefits they used to.

If you’ve been feeling the financial squeeze, you’re not alone.

But here’s the good news: you can take back control of your financial future and save significant amounts of money that would otherwise go to taxes.

One of the most powerful strategies for business owners is setting up an Individual Pension Plan (IPP).

What Is an IPP?

Think of an IPP as a “super RRSP” designed specifically for Canadian business owners, incorporated professionals, and high-level executives. It allows you to set up a government-level pension without actually working for the government.

The biggest advantage? An IPP lets you defer significantly more taxable income than an RRSP. If you contribute to an IPP until retirement at age 65, you could accumulate up to $1 million more than with an RRSP—resulting in substantial tax savings and a much more comfortable retirement.

Real-Life Tax Savings: A Client Success Story

To illustrate the power of an IPP, let me share a recent example. One of our clients, a business owner born in 1977, set up their IPP this year. Here’s what happened:

• In the first year alone, they were able to contribute $50,000 more than they could with just an RRSP.
• This resulted in $24,000 in tax savings in that year.
• By contributing until age 65, they would accumulate an additional $959,000, with estimated tax savings of $460,000 over time.

And that’s just the beginning. This tax deferral allows for even greater growth of these sheltered assets, creating long-term financial security.

Immediate Benefits of Starting an IPP

Setting up an IPP comes with immediate advantages. For example:

1. Lump Sum Contributions: Depending on how long you’ve owned your corporation, you may be eligible for a substantial lump sum contribution in the first year. Some clients have contributed up to $200,000 in year one alone, leading to significant upfront tax savings.
2. Corporate-Paid Expenses: Any expenses related to the IPP’s setup or management are paid through the corporation, offering even greater tax savings—something you won’t get with an RRSP.
3. Creditor Protection: Contributions to an IPP are creditor-proof, meaning your assets are protected in the event of legal issues.
4. CRA-Prescribed Growth Rate: IPPs are designed to grow at the CRA-prescribed rate of 7.5%. If the markets underperform, you can top up your contributions to ensure consistent growth toward your financial goals.

A Perfect Tool for Family Businesses

IPPs also shine when it comes to tax-efficient succession planning for family businesses. When passing your business to the next generation, the remaining assets in an IPP can be transferred to the next family owner, minimizing estate taxes that would normally apply. This ensures your legacy is passed on efficiently and cost-effectively.

Why an IPP Makes Sense Today

At a time when it feels like Canadian business owners are being taxed from every angle, an IPP offers a way to move forward with confidence. It allows you to reduce your tax burden, grow your retirement savings, and protect your financial future.

The best part? It’s easier than you think to get started. By taking this step, you’ll join other business owners who are saving money and creating a secure future for themselves and their families.

Ready to Take Control of Your Financial Future?

If you’re interested in learning how an IPP could benefit your business and your family, we’re here to help. Schedule a free consultation at Approach Advisory today, and let’s start saving you money for the retirement you deserve.