Individual Pension Plans (IPPs) for Business Owners in Ontario: Tax-Efficient Retirement Savings

By Bader A. Chowdry, CPA, CA, LPA | Insight Accounting CPA

If you’re a successful business owner in Ontario earning $150,000+ annually, you may have maxed out your RRSP contributions and are looking for additional tax-efficient retirement savings options. An Individual Pension Plan (IPP) could be the strategic solution you’ve been searching for.

Individual Pension Plans are employer-sponsored defined benefit pension plans designed for incorporated business owners and key executives in Canada. Unlike RRSPs, IPPs offer significantly higher contribution limits, creditor protection, and unique tax advantages that can help GTA business owners build substantial retirement wealth while reducing corporate tax liability.

In this comprehensive guide, Insight Accounting CPA explains how IPPs work, who benefits most, contribution limits, tax advantages, and the critical setup and compliance requirements for Ontario business owners.

What Is an Individual Pension Plan (IPP)?

An Individual Pension Plan is a registered defined benefit pension plan established by a corporation for the benefit of one individualtypically the business owner or a key executive. The plan is registered with the Canada Revenue Agency (CRA) and must comply with both federal Income Tax Act provisions and provincial pension standards legislation in Ontario.

Key Characteristics of IPPs

Defined Benefit Structure: The plan promises a specific retirement benefit based on salary and years of service, rather than an uncertain account balance like RRSPs or RRIFs.
Employer-Sponsored: The corporation establishes and funds the plan. Contributions are tax-deductible corporate expenses.
Actuarially Determined Contributions: Annual contributions are calculated by an actuary based on the promised retirement benefit, age, salary, and investment returns.
Creditor Protection: Unlike RRSPs, IPP assets are generally protected from creditors under provincial pension legislation in Ontario.
RRSP Rollover Opportunity: Existing RRSP assets can be transferred into an IPP on a tax-free basis up to prescribed limits, consolidating retirement assets.

Who Benefits Most from an Individual Pension Plan?

IPPs are not suitable for every business owner. The ideal candidate profile includes:

Age 40+ with High Income

The mathematics of IPPs heavily favor older, higher-income earners. Business owners aged 50-65 with T4 employment income exceeding $150,000 receive the greatest contribution advantages over RRSPs.

As you age, the actuarial calculations allow for larger annual contributions because there are fewer years until retirement to fund the promised benefit. A 55-year-old owner can contribute substantially more than a 35-year-old with identical income.

Incorporated Business Owners

You must operate through a Canadian Controlled Private Corporation (CCPC) to establish an IPP. The corporation becomes the plan sponsor and makes tax-deductible contributions.

Sole proprietors, partnerships, and individuals earning professional income directly cannot establish IPPs unless they incorporate.

Consistent High T4 Salary

IPPs are funded based on T4 employment income from the corporation, not dividend income. Business owners who take most of their compensation as dividends receive limited IPP benefit.

The ideal candidate draws a regular T4 salary of $160,000+ (2026 YMPE threshold for maximum pension accrual) annually for at least three consecutive years.

Long-Term Retirement Planning Horizon

IPPs require actuarial services, annual filings, and compliance costs ranging from $2,000-$5,000 annually. The setup and ongoing administrative burden make sense only for business owners committed to long-term retirement savings.

If you anticipate selling your business within 3-5 years or significantly reducing your salary, an IPP may not provide sufficient value.

Maxed-Out RRSP Contributor

If you’ve consistently maximized RRSP contributions and still have excess corporate cash available for retirement savings, an IPP offers a tax-efficient vehicle to shelter significantly larger amounts.

IPP Contribution Limits vs. RRSP: The Math

The primary financial advantage of an IPP is the ability to contribute and deduct substantially more than RRSP limits, especially for older business owners.

RRSP Maximum for 2026

The maximum RRSP contribution for 2026 is $32,490 (18% of 2025 income up to $180,500 RRSP dollar limit).

IPP Contribution Potential

IPP contributions are based on the defined benefit pension formula and actuarial calculations. The formula allows for pension accrual of up to 2% of the best average salary per year of service, to a maximum of 72.5% of pre-retirement income after 36.25 years.

For a 55-year-old Ontario business owner earning $200,000 annually, an actuarially calculated IPP contribution could exceed $60,000 in the first yearnearly double the RRSP maximum.

Past Service Contribution Catch-Up

One of the most powerful IPP features is the ability to make lump-sum contributions for past years of employment with the corporation. If you’ve worked in your business for 15 years and are now establishing an IPP, you can make a large “past service” contribution to make up for the pension you would have accrued if the IPP had existed from the beginning.

Past service contributions can range from $100,000 to $500,000+ depending on age, salary history, and years of service. This creates an immediate large corporate tax deduction and transfers significant value into a tax-sheltered, creditor-protected pension account.

RRSP Transfer to IPP

Existing RRSP balances can be transferred to the IPP on a tax-free basis to fund past service liabilities. This consolidates retirement assets, improves creditor protection, and simplifies estate planning.

The maximum RRSP transfer is determined actuarially based on past service entitlement. Any excess RRSP assets remain in your RRSP.

Tax Advantages of Individual Pension Plans in Ontario

IPPs deliver multiple layers of tax efficiency for business owners in Mississauga, Toronto, and across the GTA.

Corporate Tax Deduction

All contributions made by the corporation to the IPP are fully tax-deductible as a business expense. This reduces corporate taxable income and can save approximately 12.2% (Ontario small business rate) to 26.5% (general corporate rate) in corporate taxes.

For a corporation in the general tax bracket, a $60,000 IPP contribution generates approximately $15,900 in immediate tax savings.

Tax-Sheltered Investment Growth

Assets inside the IPP grow tax-free, similar to an RRSP. Investment income, interest, dividends, and capital gains are not taxed while held within the plan.

This tax deferral accelerates wealth accumulation compared to investing in a taxable corporate account where passive investment income is taxed at high rates (over 50% in some cases).

Creditor Protection

IPP assets are generally exempt from seizure by creditors under Ontario’s Pension Benefits Act. This protection is significantly stronger than RRSPs, which have more limited creditor protection (particularly for recent contributions).

For business owners concerned about liability exposure, professional malpractice claims, or business risk, the creditor protection feature alone can justify an IPP.

Estate Planning Benefits

Upon death, IPP assets can be transferred to a surviving spouse or designated beneficiary on a tax-deferred basis, similar to RRSPs.

Unlike RRSPs, which may be subject to probate fees in Ontario (1.5% on estate value over $50,000), IPP death benefits can be structured to bypass probate, reducing estate settlement costs.

Income Splitting Potential

While the IPP itself cannot be split, retirement income drawn from the IPP (pension income) qualifies for pension income splitting with a spouse, reducing family tax liability in retirement.

Additionally, if your spouse works in the business and earns T4 salary, they can have their own IPP, effectively doubling the family’s tax-sheltered pension savings.

IPP Setup and Compliance Requirements

Establishing and maintaining an IPP involves specialized professional services and ongoing regulatory compliance.

Actuarial Services

An enrolled actuary must:

Perform the initial plan design and contribution calculations
Determine past service liabilities and RRSP transfer amounts
Prepare annual actuarial valuations (required every three years, or annually if the plan is underfunded)
Calculate annual current service contributions

Actuarial fees typically range from $3,000-$6,000 for setup and $1,500-$3,000 annually for ongoing valuations.

CRA Registration

The IPP must be registered with the CRA as a Registered Pension Plan (RPP). The application process involves submitting the plan documents, trust agreement, and actuarial report.

CRA registration typically takes 3-6 months and must be completed before contributions can be made.

Ontario Financial Services Regulatory Authority (FSRA) Registration

In Ontario, IPPs must also register with FSRA (formerly the Financial Services Commission of Ontario) and comply with provincial pension standards legislation.

FSRA registration requires:

Submission of plan documents and trust agreements
Payment of registration fees ($1,000+ depending on plan complexity)
Annual information returns and financial statements
Compliance with Ontario funding requirements and investment restrictions

Legal Documentation

An IPP requires formal legal documentation, including:

Plan text (the legal document defining the pension promise, eligibility, and benefits)
Trust agreement (establishing the pension trust and naming trustees)
Corporate resolutions authorizing the plan
Employment agreements reflecting pensionable salary

Legal fees for IPP setup typically range from $2,000-$5,000.

Annual Compliance and Reporting

Once established, the IPP requires annual filings and compliance activities:

Actuarial Valuation: Filed every three years (or annually if underfunded).
CRA Form T244: Annual report of contributions and pension adjustments.
FSRA Annual Information Return: Filed annually with Ontario pension regulator.
T4 Pension Adjustment Reporting: The IPP contribution creates a “pension adjustment” on the business owner’s T4, reducing RRSP contribution room for the year.
Trust Tax Return (T3): If the IPP trust earns income in a year, a T3 return may be required.

Ongoing compliance costs typically range from $2,500-$5,000 annually, including actuarial, accounting, and administrative fees.

IPP Investment Management and Funding Rules

The corporation is responsible for funding the IPP based on actuarial recommendations. Investments within the IPP must comply with federal and Ontario pension investment rules.

Funding Obligations

The actuary determines the required annual contribution based on:

Current service cost (pension earned in the current year)
Past service cost (if applicable)
Investment performance adjustments

If the IPP investments underperform actuarial assumptions, the corporation must make additional “top-up” contributions to ensure the plan remains fully funded.

Conversely, if investments outperform, required contributions may decrease or pause temporarily if the plan becomes overfunded (though overfunding limits apply).

Investment Restrictions

IPP investments must comply with federal pension investment regulations, including:

Diversification requirements
Prohibited investments (generally similar to RRSP prohibited investment rules)
Restrictions on self-dealing and related-party transactions

Most IPPs are invested in low-cost, diversified portfolios of stocks, bonds, and mutual funds managed by licensed investment advisors.

Prohibited Transactions

IPP assets cannot be used to:

Lend money to the business owner or corporation
Purchase assets from the owner or related parties
Invest in the owner’s corporation shares
Provide personal benefits to the plan member

Prohibited transactions trigger significant tax penalties and can result in plan deregistration.

IPP Withdrawals and Retirement Income

IPPs are designed to provide lifetime retirement income, not lump-sum withdrawals.

Retirement Benefits

Upon retirement (typically age 65, though early retirement is possible), the IPP pays a monthly pension based on the defined benefit formula:

2% years of service best average salary (typically final three years)

For example, a business owner retiring at age 65 with 20 years of IPP-credited service and a final average salary of $200,000 would receive an annual pension of $80,000 (2% 20 years $200,000).

This pension is taxable income but qualifies for pension income splitting with a spouse and the $2,000 pension income tax credit.

Early Retirement Options

Many IPPs allow for early retirement (e.g., age 60) with reduced pension benefits. The reduction reflects the longer period over which the pension will be paid and the shorter contribution period.

Lump-Sum Commuted Value Option

In some circumstances, the plan member can elect to receive a lump-sum “commuted value” payment instead of a lifetime pension. The commuted value is the present value of all future pension payments calculated actuarially.

The commuted value can be transferred on a tax-deferred basis to a locked-in retirement account (LIRA) or life income fund (LIF) up to CRA maximums, with any excess paid as taxable cash.

Death Benefits

If the plan member dies before retirement, the IPP assets are paid to the designated beneficiary (typically the spouse) as a lump-sum death benefit or spousal pension.

Death benefits can be transferred to the spouse’s RRSP or RRIF on a tax-deferred basis.

Potential Disadvantages and Risks of IPPs

While IPPs offer significant advantages, they also involve complexity, costs, and risks that business owners must understand.

High Setup and Ongoing Costs

Actuarial, legal, accounting, and regulatory filing fees can total $5,000-$10,000 in the first year and $2,500-$5,000 annually thereafter.

For business owners with modest retirement savings goals or limited corporate cash flow, these costs may outweigh the tax benefits.

Funding Risk

The corporation is obligated to fully fund the pension promise. If IPP investments underperform or the member lives longer than expected, the corporation may be required to make additional catch-up contributions.

This funding risk is borne entirely by the corporation, creating potential cash flow pressure.

Lack of Liquidity

IPP assets are locked in until retirement and cannot be accessed for emergencies, business opportunities, or other financial needs.

Unlike RRSPs (which allow for Home Buyers’ Plan or Lifelong Learning Plan withdrawals), IPPs offer no early withdrawal options without severe tax penalties and plan termination.

Complexity and Administrative Burden

IPPs require specialized professional advice, annual actuarial valuations, dual regulatory compliance (CRA and FSRA), and detailed record-keeping.

Business owners who value simplicity may find IPPs overly complex compared to traditional RRSPs or TFSAs.

Business Sale Considerations

If you sell your business or transition to dividend compensation, the IPP must be carefully managed. The new owner may not wish to continue funding the IPP, requiring plan termination and potential tax consequences.

IPP vs. RRSP: Decision Framework

Choosing between maximizing RRSP contributions and establishing an IPP depends on your specific circumstances.

IPP Makes Sense If:

You are age 50+ with consistent T4 income of $150,000+
You have maxed out RRSP contributions for multiple years
You have at least 10+ years of employment history with your corporation (enabling valuable past service contributions)
You value creditor protection and are concerned about liability exposure
Your corporation has excess cash flow to fund contributions
You are committed to long-term retirement planning (10+ years until retirement)
You are comfortable with administrative complexity and annual compliance costs

Stick with RRSP If:

You are under age 45 (RRSP and IPP contribution limits are similar at younger ages)
Your income fluctuates significantly year-to-year
You take most compensation as dividends rather than T4 salary
You may sell your business or retire within 5 years
You prefer simplicity and low administrative costs
You want flexibility to access funds before retirement

How Insight Accounting CPA Helps Ontario Business Owners with IPPs

At Insight Accounting CPA, we specialize in tax-efficient retirement planning for incorporated business owners in Mississauga, Toronto, and across the GTA.

IPP Feasibility Analysis

We perform detailed financial modeling to compare the projected benefits and costs of an IPP vs. maximizing RRSP contributions based on your specific age, salary, years of service, and retirement goals.

Our analysis includes:

Projected contribution limits and tax savings over 5, 10, and 15-year horizons
Break-even analysis on setup and ongoing costs
Sensitivity testing for investment return assumptions and salary changes
Comparison of creditor protection and estate planning benefits

Coordination with Actuaries and Legal Counsel

We work collaboratively with enrolled actuaries and pension lawyers to ensure your IPP is properly designed, registered, and compliant with CRA and FSRA requirements.

Our role includes:

Coordinating the actuarial design and contribution calculations
Reviewing and interpreting actuarial reports
Preparing corporate resolutions and T4 pension adjustments
Managing CRA and FSRA registration processes

Annual Compliance and Tax Optimization

Once your IPP is established, we provide ongoing support including:

Coordination of annual actuarial valuations
Preparation and filing of T244, FSRA annual returns, and T3 trust returns
Strategic advice on contribution timing and amounts to optimize corporate tax deductions
Monitoring funding levels and recommending adjustments

Integration with Overall Tax Strategy

An IPP is just one component of a comprehensive tax plan. We integrate your IPP with:

Corporate tax planning (salary vs. dividend optimization)
Estate and succession planning
Business sale preparation and exit planning
Family income splitting strategies

Our patent-pending AI governance framework ensures your retirement and tax planning strategies remain compliant, proactive, and aligned with your long-term wealth goals.

Frequently Asked Questions About Individual Pension Plans

Can I have both an IPP and an RRSP?

Yes, but your RRSP contribution room is reduced by a “pension adjustment” equal to the IPP benefit accrued each year. In practice, once you establish an IPP, you will have little to no RRSP contribution room available.

However, any existing RRSP assets remain intact and can often be transferred into the IPP on a tax-free basis.

What happens to my IPP if I sell my business?

If you sell your business, the IPP can continue if the new owner agrees to assume the plan sponsorship and funding obligations. Alternatively, you can terminate the IPP and transfer the commuted value to a LIRA or LIF.

Proper planning during a business sale is critical to avoid tax penalties and maximize the value of your IPP.

Can my spouse have an IPP too?

Yes, if your spouse is an employee of the corporation and receives T4 salary, they can establish their own IPP. This effectively doubles the family’s tax-sheltered retirement savings potential.

Spousal IPPs are particularly effective for income splitting and creditor protection planning.

Are IPPs subject to the same prohibited investment rules as RRSPs?

Yes, IPPs are subject to similar (and in some cases stricter) prohibited investment rules. IPP assets cannot be invested in your own corporation’s shares, loaned to you or related parties, or used for self-dealing transactions.

How does an IPP interact with the Canada Pension Plan (CPP)?

An IPP does not reduce your CPP entitlement. CPP benefits are based on your employment earnings history and are separate from any private pension arrangements.

At retirement, you will receive both CPP benefits and your IPP pension, though both are taxable income and may push you into a higher marginal tax bracket.

What if my IPP becomes overfunded?

If strong investment returns cause the IPP to become overfunded (exceeding CRA limits), required contributions may be suspended temporarily. In some cases, surplus funds can be refunded to the corporation (subject to tax) or used to provide ancillary benefits like early retirement improvements.

Overfunding is generally a “good problem to have” but requires careful actuarial and tax management.

Take Control of Your Retirement Future with Expert IPP Planning

Individual Pension Plans offer Ontario business owners a powerful tool to maximize tax-deferred retirement savings, protect assets from creditors, and build long-term financial security.

However, IPPs are complex financial instruments that require expert design, implementation, and ongoing management. The wrong structure or poor compliance can trigger tax penalties, funding crises, and regulatory complications.

At Insight Accounting CPA, we bring deep expertise in IPP planning, actuarial coordination, and tax optimization to help business owners in Mississauga and across the GTA make informed retirement planning decisions.

Ready to explore whether an IPP is right for you?

Contact Bader A. Chowdry, CPA, CA, LPA and the team at Insight Accounting CPA today for a confidential IPP feasibility consultation.

Call us at (905) 270-1873 or visit www.insightscpa.ca/about to schedule your strategic retirement planning session.

About the Author

Bader A. Chowdry, CPA, CA, LPA is the founder of Insight Accounting CPA Professional Corporation, a leading accounting and advisory firm serving business owners in Mississauga, Toronto, and the Greater Toronto Area. With expertise in tax planning, IPP design, and business advisory services, Bader helps entrepreneurs and executives build tax-efficient retirement wealth and achieve long-term financial success.

Insight Accounting CPA is recognized for its patent-pending AI governance framework and commitment to proactive, compliance-driven financial strategies.

Learn more at www.insightscpa.ca.