My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, December 8, 2014

Personal Pension Plans

The last time I wrote about Individual Pension Plans (“IPPs”) was in 2011; see my blog. Recently, I have received a few emails from my readers asking if I planned to update the discussion on this topic. As it happens, over the last year or so, I have met and spoken to Jean-Pierre Laporte of INTEGRIS Pension Management Corp. about his company’s personal pension plan (“INTEGRIS PPP”), and I thought I would ask Jean-Pierre to write a guest blog.

It should be noted upfront that the INTEGRIS PPP while similar to an IPP, is more of an IPP on steroids, and was created to be a private sector version of the major public sector defined pension plans for incorporated individuals.

While I think that for some small business owners, a personal pension plan may make sense (especially for anyone concerned their corporation is a personal service business), please be aware, that neither Cunningham LLP nor The Blunt Bean Counter blog is endorsing INTEGRIS Pension Management Corp. or the INTEGRIS PPP in any manner, and you should obtain independent professional advice on whether an IPP or a personal pension plan makes sense for your own circumstances.

With all the caveats out of the way, I will leave it to Jean-Pierre to discuss personal pension plans.

Personal Pension Plans

By Jean-Pierre A. Laporte

If there is one thing that most business owners can agree on, it is that Canadians pay too much tax. Even with well-informed accountants providing advice in the background, there is a general feeling within Corporate Canada and in the small private sector that the various levels of government are in dire need of tax revenues.

Ontario’s recent introduction of new tax brackets for the “wealthy”, the increase in the taxation of non-eligible dividends and the punitive corporate taxation of personal service businesses, in conjunction with the introduction of the mandatory Ontario Retirement Pension Plan all reinforce this perception.

Personal Pension Plan vs RRSP

One option available to reduce this tax burden is a personal pension plan. Simply-put, a personal pension plan (or PPP) is a registered pension plan offered for the owner-operator of a business or for an incorporated professional. A PPP provides a flexible contribution mechanism that can match the available cash flow of the company while enjoying superior tax deductions unavailable to those saving through RRSPs.

For example, a 55 year old doctor earning $300,000 from her medical practice corporation could contribute $24,270 her RRSP this year. If the Dr. established a PPP, she would be allowed to contribute $33,395 to her PPP, and $24,270 to her RRSP as well in the year that the PPP is established.

The double RRSP and PPP contribution noted above can occur only if two conditions are met:

(1) the member had no T4 income in the year 1990 and

(2) the RRSP deductions can only occur in the year of PPP set up. For subsequent years, the RRSP deduction is limited to $600, called the PA Offset.

Moreover, if she had drawn T4 income from her company over the past 10 years, she would also be eligible to claim an additional corporate tax deduction (in this case $95,640 assuming she received the maximum pensionable salary over that 10 year period) in the year past service is purchased.

Any investment management fees the Dr. pays to have someone manage her registered assets are tax-deductible to her corporation.

At retirement, her basic pension benefit could also be enhanced with indexing protection or she could retire early on a full unreduced pension and make a final tax deductible contribution out of her corporation. For example, in the example above, if the Doctor decided to retire at age 60 instead of 65, on a full (i.e. unreduced) pension, the medical corporation would have to contribute $286,252. This amount called “terminal funding” is also tax-deductible in the hands of the medical corporation, against corporate income taxes. At 15.5% of corporate tax, the medical corporation will receive a cheque from the CRA worth $44,369.06. Not a bad way to start one’s retirement. In addition, by removing excess cash out of the sponsoring corporation, there is a secondary benefit of purifying the corporation for purposes of the $800,000 lifetime capital gains exemption, especially where you are preparing the company for sale.

The value of the tax refunds generated by the additional deductions permitted by pension law can often reach over $100,000 over a 20 year period, a sum that, by definition, cannot be accessed through an RRSP. The true value of the PPP though comes from the substantially higher tax-deferred compounding of assets resulting from higher contributions.

Personal Service Businesses

For small businesses who only have one large client (such as IT Consultants and oil patch service providers) and may be considered personal service corporations, a PPP may be a very effective tax planning tool. In Ontario, these types of corporations pay corporate tax at the rate of 39.5%. While deductions are limited to salaries and benefits, the Canada Revenue Agency does consider contributions to an individual pension plan such as the PPP to be an eligible corporate deduction. As such, the PPP provides a great way to convert tax owing into pension benefits.

The Disadvantages of a Personal Pension Plan

If a business owner is solely looking to their registered plan to claim a deduction but need to access all of their money at any time, the PPP is inappropriate since pension laws require that a portion of the contributions and interest be set aside to provide for a pension in retirement.

In addition, you cannot invest more than 10% of the book value of your pension fund into any one security, as that would be in violation of the specific investment rules that regulates most of the registered pension plans in Canada.

In conclusion, for incorporated professionals and owner/operators of companies (especially those deemed to be personal service businesses by the CRA), a Personal Pension Plan allows you to build up a substantial retirement nest-egg that is much larger than what RRSP rules allow. Even if the rate of return on assets is held constant, over 20 years, the difference in wealth accumulated between the two types of plans can be substantial.

Jean-Pierre A. Laporte, BA, MA, JD, is the Chief Executive Officer of INTEGRIS Pension Management Corp. The company is a private Canadian based company that offers business owners and incorporated professionals tax-effective ways to save for retirement by providing access to highly experienced actuaries, pension and compliance officers. The company has alliances with some of Canada’s highly regulated, respected and well capitalized companies to offer the best-in-class service providers. Jean-Pierre can be contacted at 416-214-5000. The company’s website is

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs. Please note the blog post is time sensitive and subject to changes in legislation or law.


  1. In the doctor example provided above, does it make sense to save a paltry 15.5% (small business tax rate) tax on contributions to a PPP only to face a substantially higher - possibly double or more - this level of taxes on the resulting pension income?

    The same logic applies to the "terminal funding" of $286,252 which triggers a $44,369 (= 15.5% x $286,252) cheque from CRA. This could easily require the doctor to pay double (or more) of the initial $44,369 of her tax "savings" back to CRA when the funds are eventually drawn out of the PPP at her personal marginal tax rate.

    In my view, a comprehensive cost-benefit analysis should be performed by a competent third party any time a strategy like this is considered.

    1. Hi Anon:

      Some tax may be paid at 26.5% instead of 15.5%, but I agree with your comment, that a comprehensive cost benefit analysis should be performed and that is why I say at the outset of the post; you should obtain independent advice to determine if a personal pension plan is the right thing for you.

  2. I stopped reading at "punitive corporate taxation of PSBs". Seems like an unpleasant way to talk about some tax benefits that PSBs take whether entitled to these tax benefits or not. And probably more than likely not entitled.

    1. Hey Anon

      You can read or not read, that is your prerogative.. However, many people caught in the PSB crossfire are innocent bystanders made to incorporate if they want work.

    2. not understanding the hostility here, taxation on PSB's is very much punative...