The Liberal government is considering tax changes that will affect business owners who use corporations to augment their retirement plan.
Tax changes tabled by the Liberal government have not been implemented yet, but early reviews of these proposals indicate it would be sensible for professionals and small business owners who use corporate structures to aid in their investment and retirement planning, to consider alternatives in the event these tax changes become reality.
Retirement Planning
If one of the key objectives of your existing investment plan is preparing for retirement, one alternative to your corporate structure strategy is the establishment of on Individual Pension Plan or IPP.
An IPP is like and RRSP in that investment returns accrue tax free inside the plan, however, in the case of an IPP, the contribution limits are higher than those for RRSP’s. IPP work best for investors in the 40 - 71 age bracket. In fact, the older the business owner, in most cases, the more contribution room there is available for an IPP over an RRSP.
IPPs are held in the name of the corporation you may have set up, which acts as the plan sponsor. As with an RRSP, when you put the funds into the IPP, the corporation receives a tax deduction and the funds grow inside the plan tax free.
IPPs are Creditor Proof
IPP funds are protected from creditors and the cost of administering them are tax deductible.
Depending on the final wording of the governments proposed tax changes, an Individual Pension Plan may be the ideal alternative to your present, small business corporation tax structure and allow you to continue to maximize your retirement savings during your peak earning years.