Grow your retirement income

Kirbey Lockhart provides options for business owners looking to enhance their income retirement

As an owner of a corporation, you have several innovative strategies available to help you reduce or defer corporate income tax and enhance your income in retirement.

Individual Pension Plan (IPP)

An IPP is an employer-sponsored registered pension plan that enables you to make potentially higher tax-deductible contributions compared to your Registered Retirement Savings Plan (RSP). Your corporation claims the tax deductions, as opposed to an RSP, where you claim them personally. You can also make tax-deductible contributions for past service or to “top up” your IPP. IPPs are ideal for self-employed incorporated business owners or professionals aged 40-71 who earn at least $127,611 annually.

Unlike a regular pension plan, an IPP is usually established for just one person, although a spouse employed by the same company can also be a plan member in some cases. While offering several key advantages, there are some considerations with an IPP. First, it essentially replaces your RSP, rather than supplementing it. There are also additional administrative requirements, including an actuarial valuation every three years.

n Retirement compensation arrangement (RCA)

Often referred to as the “super-sized pension,” an RCA is a non-registered plan set up by your company to provide benefits when you retire. An RCA is designed to reduce the “pension gap” that high-income executives and business owners face due to contribution caps on regular registered retirement plans. Because of these caps, high-income earners are often unable to contribute enough to ensure they receive an adequate retirement income, considered by many financial planners to be 70 per cent of pre-retirement income.

An RCA can help you overcome this shortfall. With an RCA, your company makes 100 per cent tax-deductible contributions, and you don’t pay personal taxes until you start receiving payments from the RCA after you retire. The RCA payments, combined with payments from your registered plans, should be “reasonable” – essentially what you would have received if your registered plan contributions hadn’t been capped.

n Corporate Insured Retirement Plan (IRP)

A Corporate IRP is a strategy that combines insurance protection with tax-deferred investment growth. As you normally would, you pay premiums for insurance coverage, which can be used, for example, to cover the loss of a key employee or to fund a buy-sell agreement between business partners. However, in addition to paying the premiums, you can also contribute additional funds, which can grow on a tax-deferred basis within the insurance policy, similar to an RSP. After a certain number of years, you can access these funds by taking out a tax-free bank loan, using the insurance policy as collateral. The funds can be used in any way you need – to supplement your retirement income, buy out a business partner, or fund a new business venture. When the shareholder passes away the bank loan is then repaid with the life insurance benefit, with the remainder going to the beneficiaries.

n Corporate insured annuity

A corporate insured annuity can enhance your retirement income, while ensuring that you can still leave a substantial estate for your beneficiaries. It is ideal for shareholders of corporations with surplus cash held in liquid investments such as GICs. Using the surplus cash, the corporation purchases a life annuity to supplement the shareholder’s retirement income, plus a life insurance policy on the shareholder’s life. When the shareholder passes away, the company receives a tax-free death benefit equal to the amount used to purchase the annuity, which enhances the shareholder’s estate value. Bear in mind that this strategy, while potentially enhancing your income and estate value, does involve a long-term financial commitment.

 

Kirbey Lockart is an investment advisor with RBC Dominion Securities. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.

 

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

$173K to support Okanagan seniors amid pandemic

United Way announces more funding for frontline programs

Vernon couple support Kidney Walk despite setbacks

Jacqueline Marioni has had two kidney transplants; both organs have rejected or are rejecting her

Vernon Vipers land prep school blueliner

Griffen Barr, from Nanaimo, was captain of Shawnigan Lake club in 2019-20

Okanagan home sales increase over last month, still below 2019 numbers: OMREB

Sales, listings see increase over May’s numbers but dwindle in comparison to 2019

Suspicious activity on Predator Ridge bike trails

A rock deliberately placed on a hazardous corner results in bolstered security, cameras

B.C. records four new COVID-19 cases, Abbotsford hospital outbreak cleared

Four senior home outbreaks also declared over, eight still active

Princeton RCMP sergeant kills cougar threatening residential neighborhood

An RCMP officer shot and killed a cougar, close to a residential… Continue reading

Pilot project approved: Penticton to allow alcohol in outdoor spaces

For almost two hours, council debated the proposed pilot project, before eventually passing it 4-2

Drugs, machete found in truck with stolen plate driven by Salmon Arm man

Chase RCMP arrest driver and have vehicle towed

RCMP, coroner investigate murder-suicide on Salt Spring Island

Two dead, police say there is no risk to the public

About 30% of B.C. students return to schools as in-class teaching restarts amid pandemic

Education minister noted that in-class instruction remains optional

Trudeau avoids questions about anti-racism protesters dispersed for Trump photo-op

Prime minister says racism is an issue Canadians must tackle at home, too

Top cop calls video of Kelowna Mountie striking suspect ‘concerning’

A video allegedly shows a Kelowna Mountie striking a man several times

B.C.’s Law Enforcement Torch Run for Special Olympics goes virtual

The annual event partnering RCMP with Special Olympians is dramatically altered by COVID-19

Most Read