2011 Federal Budget—Individual Pension Plans

The federal Budget tabled on June 6, 2011 included no changes to the income tax measures originally announced in the Budget on March 22, 2011.

An individual pension plan (“IPP”) is a type of Registered Pension Plan (“RPP”) that is established by the employer for one individual (generally an owner of the business or executive). A main advantage of an IPP is that a higher annual contribution is permitted than would otherwise be possible under an RRSP and, depending on the circumstances, a lump sum amount for past services may be contributed to the IPP. This allows the employer to contribute a large lump sum payment to the IPP for years of employment before the IPP was established, thereby deferring tax on that amount. The 2011 Budget, however, proposes two new tax measures that will apply to IPPs. Firstly, effective beginning in 2012, an annual minimum amount will be required to be withdrawn from an IPP similar to current withdrawal requirements from Registered Retirement Income Funds (“RRIF”), once a plan member attains the age of 72. The minimum withdrawal rate for RRIFs increases annually and reaches a maximum withdrawal requirement of 20% upon the plan member attaining the age 94 (and over).Secondly, effective for contributions made after March 22, 2011, contributions made to an IPP that relate to past years of employment will be required to be funded first out of a plan member’s existing RRSP assets, or by reducing the individual’s accumulated RRSP contribution room before new deductible contributions in relation to past services may be made.  Accordingly, a major benefit of using an IPP will be eliminated; namely the ability to defer taxes by contributing a large lump sum amount into the IPP at the commencement of the plan.


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