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The One Minute Manager . . . . .

Lawyers are continually seeking ways to shelter their incomes from the burdensome Canadian tax rates. There is one tax vehicle that offers enormous potential and yet has been greatly underutilized by the legal community. Independent Pension Plans (IPP) offer CRA-sanctioned income deferrals that can build retirement pools of substantial wealth.

In brief, an IPP is a defined benefit pension that allows payments over and above your RRSP contributions. The contributions can be significantly higher than RRSP limits. All costs, including interest borrowing costs, are tax deductible. Additional tax deductible contributions can be made should the rate of return on plan assets be less than 7.5% a year.

An IPP might be a solution to the many firms that are facing retirement and succession issues with their swelled ranks of baby-boomers. These partners will be drawing out large funds from the firm under partnership retirement provisions. The IPP can provide a funding method during the income producing years of those partners and not draw against the post retirement income pool of the continuing partners. An additional benefit is that vesting provisions can be included in the pension plan that effectively provides ?golden hand cuffs? to limit key partners from shifting to competing firms.

The complicating factor for implementing an IPP is that the firm or individual must be incorporated as a Professional Corporation (PC). An IPP is only available for an employee of a corporation. You will lose the opportunity of participating in an IPP until this corporate structure is in place.

The Management Counsel Group works with Sandy Munro of Aon Reed Stenhouse in assisting our clients with this valuable tax and strategic opportunity. We welcome any questions that you may have.