Individual pension plan: owner DB pension, PA up to $34,790 in 2026

An IPP is a defined benefit RPP with fewer than four members, one related to the employer

Regulation 8300(1) defines an individual pension plan as a registered pension plan with a defined benefit provision that, in the year or any earlier year, had fewer than four members with at least one related to a participating employer. A designated plan that added members mainly to escape that test is caught too laws-lois.justice.gc.ca. The usual member is an owner who is connected with the corporation: someone who owns at least 10% of the issued shares of any class of the employer or a related corporation, or who doesn't deal at arm's length with it laws-lois.justice.gc.ca.

The pension formula runs on compensation, which ITA 147.1(1) defines as amounts from employment or an office included in income under section 5 or 6 laws-lois.justice.gc.ca. Dividends aren't compensation. An owner who takes only dividends earns no pension under an IPP, which is why the salary vs dividends decision comes first.

A $200,000 owner maxes out the 2026 DB limit and keeps $600 of 2027 RRSP room

For a member connected with the employer, Regulation 8504(1) caps the lifetime pension for each year of service at the lesser of 2% of that year's compensation (indexed to average wages) and the defined benefit limit for the year the pension starts laws-lois.justice.gc.ca. The CRA lists the 2026 DB limit at $3,932.22, one ninth of the $35,390 money purchase limit canada.ca. It takes $196,611 of 2026 salary to reach it at 2% ($3,932.22 ÷ 0.02).

Each year of accrual produces a pension adjustment of 9 times the benefit earned, minus $600, and ITA 147.1(8) makes the plan revocable if a member's PA tops the lesser of the money purchase limit and 18% of compensation laws-lois.justice.gc.ca.

Your client takes a $200,000 salary from their corporation in 2026 and the IPP accrues 2% a year, capped at that year's DB limit.

The 2027 RRSP dollar limit of $35,390 is already on the CRA limits page canada.ca. The full room formula is on RRSP limit 2026. The IPP replaces RRSP room, it doesn't add to it year by year; the extra funding comes from past service and the funding assumptions below.

The company deducts its contributions under ITA 147.2(1) when they are eligible contributions. For a defined benefit provision that means an actuary's recommendation, approved by the Minister in writing, based on a valuation dated no more than 4 years before the contribution laws-lois.justice.gc.ca. The contributions aren't a taxable benefit to your client: ITA 6(1)(a)(i) excludes benefits derived from employer contributions to a registered pension plan laws-lois.justice.gc.ca.

Past service has to come out of the RRSP and unused room first

For past service events after March 22, 2011, an IPP uses its own PSPA formula, A minus B, and every IPP PSPA has to be certified unless it's under the $50 tolerance canada.ca. A is the greater of the ordinary PSPA and a figure built from the member's RRSP, RRIF and money purchase assets plus unused room. B is the qualifying transfers. Certification caps the PSPA at unused RRSP room plus $8,000, so the transfers have to cover the rest.

The CRA's Example 22 in T4104: Mary, born July 1, 1961, sets up an IPP effective January 1, 2020 and recognizes 24 years of service at a $200,000 salary. She has $900,000 in her RRSP and $20,000 of unused room at the end of 2019 canada.ca.

Mary moves $625,120 from her RRSP to the IPP, and the $28,000 PSPA uses up her $20,000 of room plus the $8,000 allowance. A qualifying transfer can come from your client's RRSP, a DPSP, their money purchase account or a few pension sources, but not from a RRIF. It has to be made within 90 days after the PSPA is certified (Regulation 8303(7)), and the CRA wants statements from both institutions within 180 days of its registration or valuation approval letter canada.ca.

RRSP property can move in kind if it's a qualified investment, valued at fair market value, and your client can't claim a capital loss on it. Without proof of the transfer, the recognized past service may be cut, the related employer contributions denied and excess amounts returned canada.ca.

Designated plan rules cap the funding and block terminal funding

A DB plan is a designated plan for a year when more than 50% of its pension credits belong to specified individuals, and anyone connected with a participating employer is a specified individual laws-lois.justice.gc.ca. An IPP whose only member is the owner meets that test.

A designated plan can only be funded up to a maximum funding valuation that assumes 7.5% interest, 5.5% annual salary growth and, for members whose pension hasn't started, a pension starting no earlier than 65 laws-lois.justice.gc.ca. The CRA's technical manual adds the 4% CPI assumption and 80% of the 1983 GAM mortality table canada.ca.

Terminal funding, an employer contribution so the plan could pay all accrued benefits if it were wound up right away, is a prescribed contribution under Regulation 8516(2) only if the plan is not a designated plan when the contribution is made. The same bar applies to contributions required by pension benefits legislation under 8516(3) laws-lois.justice.gc.ca. For a typical IPP, the enhanced benefits a wind up basis would fund (an unreduced early pension, for example) can't be paid for with a deductible terminal funding contribution.

From the year after the member turns 71, the plan must pay at least the IPP minimum

Every RPP must start paying retirement benefits by the end of the calendar year the member turns 71 laws-lois.justice.gc.ca. An IPP then becomes revocable at the end of any year in which the member (or a surviving spouse or common law partner) is receiving retirement benefits, turned 71 before the year, and the plan paid less than the greater of the pension payable for the year and the lesser of the IPP minimum amount and the actuarial surplus at the start of the year laws-lois.justice.gc.ca. That's Regulation 8503(26). In practice the first year tested is the year the member turns 72.

The IPP minimum amount is the RRIF minimum under ITA 146.3(1) worked out as if the plan were a RRIF holding the same property. With more than one person drawing from the plan, the asset value is split by each person's share of the actuarial liabilities laws-lois.justice.gc.ca. The factor is the one in the RRIF minimum withdrawal table, by age at January 1.

Your client turned 71 in 2026, so 2027 is the first year the rule bites. On January 1, 2027 they are 71, the IPP holds $1,200,000 and the plan pension is $55,000 a year.

The minimum only forces extra payments out of a surplus. A plan without one keeps paying the pension formula amount, and the factor climbs each year after that (5.40% at 72 on January 1).