The IPP a pension for Calgary owner-managers

A defined benefit pension built for one owner

An RRSP asks what you can put in. An IPP asks what it costs to fund the pension you have earned.

The Income Tax Regulations define an individual pension plan as a registered defined benefit plan with fewer than four members, at least one of whom is related to the employer. In practice it is a pension the company sets up for its owner, and sometimes the owner's spouse. The plan promises a pension from a formula, and the company pays in whatever an actuary says is needed to fund it.

The company deducts those contributions when they are eligible contributions: recommended by an actuary, based on a valuation no more than four years old, approved in writing by the Canada Revenue Agency, and paid in the year or within 120 days after the year end. That is the core appeal for a Calgary owner-manager with retained earnings: corporate dollars go into a personal pension without first passing through your personal tax return.

Only salary builds an IPP pension

A pension can be earned only for periods when you are employed by the company and paid by it. The earnings that count are employment income from your company, the salary on your T4. Dividends do not count.

For an owner with 10 per cent or more of the shares, each year from 1991 on earns at most 2 per cent of that year's salary, capped at the defined benefit limit ($3,932.22 of annual pension for 2026). A year with no salary earns no pension at all, and dividend-only years cannot be bought back later.

If you own an oilfield service or drilling company or a professional corporation in Calgary and pay yourself mostly in dividends, the IPP question starts with your pay mix. The planning conversation is usually about whether moving to salary is worth it before an IPP is worth anything. The incorporate or not calculator models Alberta corporate and personal tax for an owner.

How IPP room compares with RRSP room

Your RRSP limit is the lesser of 18 per cent of last year's earned income and the RRSP dollar limit ($33,810 for 2026), whatever your age. An IPP works differently. Its contribution is whatever the actuary certifies is needed for the pension promised, and for an owner's plan the tax rules cap it using fixed assumptions: 7.5 per cent interest, 5.5 per cent wage growth, and a pension starting no earlier than 65.

Under those fixed assumptions, one year of pension costs more to fund the closer you are to 65. So the yearly IPP room rises with age, and later in a career it can exceed RRSP room on the same salary. There is no set age where that happens; only an actuary's numbers for you settle it.

Joining an IPP nearly wipes out new RRSP room, because the pension adjustment is nine times the pension earned that year, less $600. The IPP vs RRSP calculator puts the two side by side with Alberta corporate and personal tax, so you can see the trade with your own salary and contribution figures.

Funding the years before the plan existed

An IPP can credit past years in which you were employed and paid a salary by the company, or a predecessor employer, generally back to 1991. Years with an unrelated former employer cannot be brought in. This is where a large deductible contribution in a single year can come from, with three conditions:

• CRA certifies the past service first. It checks your earnings and service against its own records.
• Your RRSP goes first. The rules require a qualifying transfer from your own RRSP, a share of its assets plus unused RRSP room, before the company funds the rest. Past service is not all new company money.
• Years before 1991 are restricted. For an owner, benefits for those years must be acceptable to the Minister and follow older, tighter rules.

What it takes to run an IPP

An actuary values the plan before the first deductible contribution, and for tax purposes the valuation behind any contribution can be no more than four years old. A three-year cycle is common practice. There are set-up fees and yearly actuarial and administration fees, usually paid by the company; your accountant confirms how they are deducted. Ask for a written quote before you start, because the fees are part of whether the plan is worth it.

How Alberta's pension law treats an owner's plan

Alberta's Employment Pension Plans Act does not apply to a plan whose members are all connected with the employer (in short, owners of 10 per cent or more of the shares), except for the sections the regulation lists. What that means for an owner-only IPP:

• Still applies: vesting, locking-in and unlocking, survivor benefits, relationship breakdown, transfers, and the locked-in account rules.
• Does not apply: registration with Alberta's superintendent, Alberta's funding rules, and its three-year review cycle.

That exemption depends on every member being connected. If a family member on payroll or a key employee joins, confirm their status with the actuary first, because a member who is not connected brings the whole Act into play, funding rules and reviews included.

Retiring, selling or winding up

An IPP is a pension, so the money is meant to become retirement income. Alberta's locking-in rules apply, with the usual narrow exceptions: small balances, shortened life expectancy, non-residency, financial hardship from a locked-in account, and up to 50 per cent when moving to a life income fund.

• Taking a pension. After the year you turn 71, the plan must pay out at least the IPP minimum amount each year.
• Winding up. A plan can be terminated on request: it goes inactive, the assets are paid out, and registration ends.
• The transfer cap. A lump sum moves to an RRSP or RRIF tax-deferred only up to a prescribed amount based on your age, the same age factors that apply when anyone leaves a defined benefit plan. Our page on commuted value or pension explains the factors.

Who an IPP tends to suit

The IPP rewards a steady beat: salary paid year after year, and cash in the company to fund it.

1. You pay yourself a salary, and plan to keep doing so. The pension is built only on T4 employment income from the company. Mostly dividends: settle the pay mix first.
2. You have years of salaried service with the company. Past salaried years, generally from 1991, are what make a large first contribution possible.
3. You are later in your career. The cost of a year of pension rises toward 65, which is when IPP room can pass RRSP room.
4. The company has steady cash flow. Contributions follow the actuary's numbers, and fees run every year.
5. You are comfortable with locked-in money. The plan is for retirement income, not a reserve to draw on.
6. Your accountant and an actuary are in the loop. The actuary sets the contributions; the accountant confirms the deductions and the T2 treatment.

Maple Groove Financial is a Calgary planning practice that works with incorporated owners. An IPP review looks at your salary history, the company's cash flow, your RRSP, and your retirement and estate goals, then compares an IPP with the alternatives before anyone pays for an actuarial quote. It is quoted up front as a fee-for-service plan (see pricing); to start, use the contact page.

Sources

• Income Tax Act (Canada), s. 20(1)(q), 146(1) (RRSP deduction limit), 147.1(1) (compensation), 147.1(10), 147.2(1) to (3) (eligible contributions), 147.3(4) (transfers).
• Income Tax Regulations (Canada), s. 8300(1) (individual pension plan), 8301(6) (pension credits), 8304(10) and (11), 8307 (past service), 8500(3) (connected person), 8503(3) and (26), 8504(1), 8515 (designated plans), 8517 (transfer factors).
• Employment Pension Plans Act (Alberta), s. 2(c), 70 and 71; Employment Pension Plans Regulation, AR 154/2014, s. 13.
• Canada Revenue Agency, Guide T4099, Registered Pension Plans Guide; Registered Plans Directorate newsletters 91-1, 95-3, 14-1, 14-2, 16-1 and 21-1; RPP Technical Manual.
• Canada Revenue Agency, 2026 money purchase, defined benefit and RRSP dollar limits.