Fact Sheet - Connected persons and tax deductions
The tax-deductible contributions that can be made to an individual pension plan (or under the defined benefit component of a personal pension plan) depend, in part, on whether the pension plan is considered a designated plan or not.
It will be considered a designated plan when most of the plan members are classified as specified individuals.
To be considered a specified individual one usually falls under one of two categories:
• The member is a “connected person” or
• The member earns more than 2.5 times the Year’s Maximum Pensionable Earnings (in 2014, the YMPE is $52,500 so the income limit is $131,250.)
A connected person, generally, owns 10% or more of the shares of the company sponsoring the IPP or PPP.
Therefore, someone earning $140,000 and who owns 11% of the shares would be a specified individual under both tests. Someone earning $50,000 and owning 11% would also be a specified individual by virtue of being a connected person. See examples below:
Ultimately, being a designated plan means that specific funding restrictions and actuarial assumptions must be used in calculating the maximum pension contributions made by the sponsoring company.
Were it not for the application of these maximum funding rules, a company contributing to a pension plan would be allowed to make even larger tax-deductible contributions.
Fact Sheet - Buying Past Service
One of the advantages of setting up a new pension plan is that it allows a plan member, with the consent of the employer, to create a pension entitlement for prior years. Such a member might have missed out on years of contributions when the plan was not yet established and can now purchase past service under the newly set up pension plan. These extra contributions are added to the plan and are tax deductible to the corporation.
Fact Sheet - Creditor Protection
There are some misconceptions on whether RRSPs are creditor protected. So, let's set the record straight. In some Canadian provinces such as Alberta, Ontario, Quebec, New Brunswick and Nova Scotia, RRSP assets are not protected from the claims of creditors unless they are held under an insurance contract issued by a life insurer and there is a designated beneficiary on record with the insurer.