| Financial Planning Solutions for Professionals | | | | - IPP can provide benefits for service back to |
| Business Owners | | | | 1991 |
| There are many options and product solutions | | | | - Creditor protection of IPP assets |
| available for incorporated small business owners | | | | - Potential for additional Company funding at |
| as well as professional business owners. In this | | | | retirement |
| article, I will explain some of the products that are | | | | - Corporate Owned Life Insurance |
| available to solve possible issues. Starting off, we | | | | - Premiums are tax deductible with respect to the |
| will look at the product solutions that are available | | | | term portion of the premium only, must be |
| and I will further discuss some of the key | | | | pledged as security for a bank loan and only in |
| benefits they provide. | | | | relation to the amount of the bank indebtedness |
| Strategies and forms of creditor protection | | | | - Even if non-deductible to the corporation, it is |
| - Incorporate the business | | | | more tax efficient to pay with after tax |
| - Still liable if you co-signed or guaranteed loans | | | | corporate dollars rather than after tax personal |
| (avoid personal guarantees) | | | | dollars |
| - Directors' liability - unpaid wages, CRA claims | | | | - Transferring life insurance out of the corp. can |
| - Doesn't eliminate liability for professional | | | | result in tax - there are no roll over provisions |
| negligence | | | | - Life insurance owed by a corporation is subject |
| - Purchase a permanent life insurance contract | | | | to creditors of the corporations |
| - Establish an Individual Pension Plan | | | | - On death difference between death benefit and |
| - Place assets in the name of the spouse | | | | adjusted cost basis of the policy is credited to the |
| - Place assets in an inter vivos trust for the | | | | capital dividend account. Depending on the life |
| individual and his or her family | | | | cycle of the policy will determine extent to which |
| Individual Pension Plan (IPP) | | | | proceeds may be removed tax free |
| - A Registered pension plan specifically designed | | | | - If shares are not rolled to a spouse on death, |
| for owner/managers and /or key employees | | | | stop loss rules can create tax to the estate. |
| - Defined benefit an, providing the maximum | | | | Personal disability coverage for professional |
| pension allowed under the Income Tax Act | | | | Disability Buy-Sell Insurance: |
| - Lifetime pension at age 65 equal to 2% of total | | | | - Designed for partnerships and private companies |
| "indexed" compensation in respect of credited | | | | to provide funds to purchase ownership in the |
| service | | | | event of a partner's or shareholders disability |
| - Annual pension cannot exceed Income Tax Act | | | | - Usually available for an Elimination period, often |
| maximum (for 2009, this is $2,444 for each year | | | | one or two years |
| of credited service) | | | | - Payments may be lump sum, fixed monthly or |
| - Survivor benefit equal to 66 2/3% of member's | | | | combined |
| pension | | | | - Eligible amount of coverage dependent on the |
| - Pension benefit indexed to CPI increases | | | | valuation method used to determine the business |
| Advantages Of IPP's | | | | value |
| - Greater tax-assisted retirement savings than | | | | - Various structures used to set up, |
| under RRSPs, DC Pension Plans, or TFSAs | | | | |
| - Retirement benefit not dependent upon | | | | 1. Cross-purchase |
| investment performance | | | | 2. |