One of the reasons you likely went into business for yourself is that you prefer to be in control of your own financial future. As the owner of a Canadian controlled private corporation (CCPC), you have more options when it comes to investing for your retirement than employees do.
One option is for you, the business owner, to draw a salary and contribute to a Registered Retirement Savings Plan (RRSP), an option available to every employed person. As the owner of a corporation, you can also invest within your corporation and take your income in the form of dividends. Another option is the Individual Pension Plan (IPP).
If you choose the salary option (including bonuses), you can make the maximum contributions to your RRSP and benefit from tax-deferred savings, leaving more for you in the long term than a corporate investment account. You can read more about this option in a February article in Wealth Professional. But a number of restrictions apply to investing within RRSPs – there are limits on how much you can contribute, and certain types of investments are not eligible to be held within RRSPs.
Using a corporate investment account, you would take your income in the form of dividends from your CCPC. Very often such corporate investment accounts do better than RRSPs, in the short term anyway. They are also preferable in the unlikely event that you can defer all of your capital gains for the long term and realize no annual income. But since rule changes in January 2014, it isn’t usually an advantage in terms of taxation to take dividends rather than a salary, particularly if you opt for the Individual Pension Plan instead.
Think of IPPs as much more flexible versions of RRSPs. IPPs are more flexible in terms of what you can invest in. For example, restrictions for RRSPs make it very difficult to invest in shares of private companies, but with an IPP you can do this more easily (except in the company that sponsors the plan). IPPs can also pool resources to invest where RRSPs can’t. Another advantage over RRSPs is that with an IPP, all fees related to running and administering the plan are tax deductible for your corporation. There’s even an HST rebate available for admin fees.
In Part Two we’ll talk more about the specifics of the IPP. In the meantime, if you’re intrigued and think this more in-control investment solution might be right for you, give DFS Private Wealth a call. As with all investments, your personal situation is what counts most. We’ll go over your individual circumstances and your plans with you and discuss whether a IPP can work for you.