How an IPP Helps Incorporated Business Owners Reduce Taxes

How an IPP Helps Incorporated Business Owners Reduce Taxes 

 

If you run an incorporated business, taxes probably feel like a partner who takes too much and contributes too little. And if you’re like most owners, retirement planning usually gets pushed to “later.”

 

That’s where an IPP — an Individual Pension Plan — can help.

 

It’s one of the cleanest, most efficient ways for your corporation to save on taxes while building your retirement income.

 

What an IPP Really Is

 

An IPP is a pension plan your corporation sets up for you.

 

You earn T4 income.

 

Your business makes contributions.

 

Those contributions grow for your retirement — and the corporation gets the tax deduction.

 

Think of it as the corporate version of an RRSP, but with more room and more benefits once you’re over 40.

 

How an IPP Reduces Taxes

 

1. Corporate Contributions Are Fully Deductible

                        With RRSPs, you contribute personally.

                        With an IPP, your business pays, and every dollar is a deductible expense.

                        This lowers corporate taxable income immediately.

                        Simple and effective.

 

2. Higher Contribution Limits After Age 40

 

Once you hit 40, an IPP allows larger contributions than an RRSP every single year.

More room =

         bigger deductions

         more tax-efficient savings

         faster retirement growth

 

It’s also a great way to “catch up” if you spent years building the business instead of saving.

 

3. Extra Deductions RRSPs Don’t Offer

 

IPP rules include additional corporate deductions, such as:

 

             Past service (buying back earlier working years)

             A final large contribution at retirement

             Deductible plan and actuarial fees

             None of these benefits exist with an RRSP.

 

Why the CRA Is Fine With This

 

The government wants incorporated professionals to have reliable retirement income.

A well-funded pension reduces future strain on public programs.

 

So the CRA essentially says: “If your corporation builds you a real pension, we’re OK giving you the deduction.”

 

Quick Comparison: IPP vs RRSP

 

Feature                     RRSP                                 IPP

Who pays?                You personally                   Your corporation

Deduction type          Personal                             Corporate

Annual Room             Same for everyone            Higher at age 40

Extra deductions        No                                      Yes

Fees deductible?       No                                      Yes

Best for                     General public                     Business owners

 

Who an IPP Works Best For

 

An IPP is a strong fit if you’re:

                An incorporated business owner

                Earning T4 income

                Age 40+

                Making $150K+ annually

                 Wanting bigger corporate deductions

                 Looking for a more structured retirement plan than an RRSP alone

 

 

Final Thoughts

 

An IPP is one of the most tax-efficient strategies available to incorporated business owners.

Your corporation contributes.

Your retirement grows.

Your tax bill shrinks.

 

If you want, I can run a free IPP quote showing:

 

How much your business could contribute

Your potential tax savings

How an IPP compares to your current RRSP room