Expanded retirement tax-sheltering using defined benefit pension rules

Registered Retirement Savings Plan (RRSP) contribution room is calculated based on a percentage of an employee’s annual income. Comparatively, a defined benefit registered pension plan (your own RPP) combines income with actuarial factors such as an individual’s age and the plan’s features to open the way toward significantly larger tax-deductible deposits.

Qualified business owners and incorporated professionals may establish a plan for one person, or up to three pension members – including spouse and family employees.

Check the boxes here to see if it is suitable for you:

❏  Is the business owned by and run through a corporation? Or if it is a professional practice, is it operated through a corporation?

❏  Does the owner draw annual income of at least $70,000 to $100,000, either as employment income alone, or combined with dividends? 

❏  Is the business owner or professional at least 38 years of age, but no older than age 72?  

❏  Has the owner maximized RRSP contributions, but is still seeking more CRA-approved tax-sheltering opportunities? 

❏  Is there surplus corporate cash that is exposed to the punitive corporate tax rates on passive income? 

If you have at least three checks so far, then this could be your route to expanded tax-sheltered savings, and here’s more to consider.

❏  Would it be appealing to increase the amount for annual spousal income splitting, and make it available before age 65?

❏  Are there any concerns that business creditors may get access to corporate assets meant to fund the owner’s retirement? 

❏  Are there family employees for whom the owner would like to arrange a tax-deferred estate transfer, bypassing creditors and probate? 

❏  Is there an anticipated or pending business sale where excess assets may threaten the owner’s claim to the lifetime capital gains exemption?

❏  If planning to retire abroad, would the owner like allow for greater tax-deferral by limiting emigration tax on deemed dispositions? 

The ideal candidate for this kind of retirement pension will have at least six checks.

To learn more about how this can work for you, see the article IPPs – Individual pension plans.