Off the top of my head:WillH wrote:As the size of the IPP GROWS, ASSUMING INTEREST RATES DON'T CHANGE, THE SIZE OF THE "top up" will grow each year.
1. You're deliberately creating a large and recurring pension deficit. Does your CCPC have enough reliable cash flow to make the top-up payments that regulators will require? IOW, what about down years for your business? At least every three years you must file an actuarial valuation with a plan to cover the deficit. That generates the top-up opportunity but the top-ups must be paid within a set time that ranges from five to 15 years. I believe that in the event of a cash crunch you can reduce the liability by reducing the pension benefits promised, but all of this should be discussed with an advisor well-versed in IPP compliance.
2. The IPP contributions will be tax-deductible for your CCPC at its marginal rate and benefits paid out in retirement will be fully taxed at your marginal rate then. To what extent, if any, will there be a mismatch? IOW, will tax saved by the CCPC today be less than future tax paid by you on the same dollar?
3. I haven't looked at IPPs for years, but am aware that successive budgets and CRA rulings have substantially reduced opportunities for gaming. You should consult a well-versed advisor on whether CRA would tolerate a chronically underfunded plan.
4. IPP setup and admin fees used to be quite high but have come down a lot. How far down, I don't know. To what extent would these costs erode the tax advantage you're seeking?
5. I know very little about CCPC taxation. If they're potentially subject to AMT, would large deductions for IPP top-up contributions create an AMT liability? In the same vein, would they create a chronic annual business loss that would unduly attract CRA's attention?
6. You wrote about "converting" your RRSP to an IPP. That implies you plan for the IPP to recognize past service and plan to pay for those credits by rolling in RRSP money. Consult a well-versed advisor; past service buyback in a red flag area that was substantially cut back a few years ago.
Have you read the explanatory material published by West Coast Actuaries? Many years ago they led the way in reducing IPP setup and admin fees and published the most informative info around.