PPP® Optimization Tips
Tip #1 Roll existing RRSPs into the AVC component of your PPP®. Turns non-deductible investment management fees into corporate tax deductions.
Potential Savings 1% Fee on AUM of $1,000,000 if Corporation pays tax at 26% = $2,600 refund of tax
Tip #2 Apply for input tax credits for HST paid on your PPP® fees (commissions, IMFs etc.)
Potential Savings 100% of HST can be refunded E.g. $500 refunded
Tip #3 Ad hoc valuation filed using market dip (e.g. March 31st 2020) – crystalizes deficits that can be replenished by the corporation with tax-deductible special payments. Also allows to go “bargain hunting” in a depressed stock market
Potential Savings Assume PPP® with $1,000,000 before March 23rd that now has $600,000. Corporate tax deduction on $400,000 special payment = $104,000 savings in corporate tax (using 26% corp.tax rate)
Tip #4 Trigger Terminal Funding prior to age 65 to enable the client to retire on a partially unreduced and indexed pension.
Potential Savings If Terminal Funding corporate tax deduction is $500,000 (and tax rate is 26%) savings are $130,000
Tip #5 Consolidate all of one’s RRSPs under the PPP® to give creditor protection to these amounts
Potential Savings Difficult to quantify the value of not losing one’s life savings to creditors
Tip #6 Pension-income splitting with a spouse as early as age 50. This can occur in parallel with Tip No. 4 (Terminal Funding)
Potential Savings If the annual pension is $100,000, the mere fact of splitting income with a spouse saves the couple $8,124 annually. If a couple starts at 50, that’s $121,860 more savings than with a RRIF. Ontario rates
Tip #7 Allocation a portion of the pension fund to non-RRSP eligible asset classes that are not linked to the stock market.
Potential Savings Provides stability to the portfolio. (Difficult to quantify)
Tip #8 Add adult children on the payroll of the family enterprise to the PPP® and recognize past service for them.
Potential Savings On the death of a retired PPP® member, there will be no ‘deemed disposition (e.g. $4,000,000 pension fund would save the survivors $2,000,000 in taxes on death) The PPP® Inter-Generational Wealth Transfer Strategy is one of the most tax-efficient ways to pass on family wealth.
Tip #9
If you are a BC Doctor, and you set up a PPP®, make sure to apply for your BC medical association subsidy (the CPRSP). Click here for the form.
Potential Savings
This program could result in an annual subsidy of over $7,000 that can be contributed to your PPP®depending on your length of service as a billing physician and other factors.
Tip #10
Don’t forget to claim your non-refundable pension amount credit ($2,000 annually) for each person in the couple if you are doing pension income splitting (See Tip #6). Click here for the CRA to provide guidance
Potential Savings
If a couple does pension income splitting (See Tip #6) and now also claims $4,000 annually as early as age 50, having remembered to claim this credit will translate into $9,000 in savings by the time they reach age 65.
Tip #11
Speak to INTEGRIS specialists about PPP® structure optimization and how to best navigate through the sale of a company, keeping the PPP structure in place.
Potential Savings
Business assets are extracted over time from the operating company to the PPP® (moving assets from a taxable to a tax-sheltered environment). The business owner may complete plan amendments to transfer sponsorship from an operating company to a holding company to prepare for the sale of the company in the future. The PPP® contributions help with purification and qualifying for the lifetime capital gains exemption on company sale.
Connect with our Sales team at [email protected] to see if we can help your clients realize additional savings.