Fact Sheet - Terminal Funding
Originally posted on Jun 02, 2012
When a business owner is selling the business or about to retire, transferring assets can trigger tax consequences. Personal Pension Plans (PPPs) do offer a retiring plan member with a one-‐time opportunity to upgrade the basic pension promised under the plan with additional benefits. The most common ancillary benefits include:
· Early unreduced pension benefits
· CPP bridge payments
· Indexing to Consumer Price Index
These benefits must be funded by the corporation sponsoring the PPP, assuming it has additional cash on hand. When a corporate sponsor of a PPP makes a one-‐time contribution to the PPP to settle the cost of the ancillary benefits, it can claim a supplemental tax deduction against its corporate income.
This process is known as “terminal funding”. It can occur when the member retires, or if the plan itself is terminated prior to retirement.
In light of the new tax rules that penalize passive investments within CCPCs, advisors must understand how pension legislation can become a powerful tool to deal with wealth succession, business succession, and tax optimization within a corporate environment.Learn more about the ppp101 course
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