The retirement tool most Canadian professionals have never heard of — and how it beats an RRSP after 40

The entire past service amount is a deductible corporate expense. The corporation can pay it in one year or amortize it for up to 15 years, depending on cash flow. The tax efficiency is significant: at a 26.5% combined federal-Ontario small business corporate rate, a $200,000 past service deduction could reduce the corporate tax bill by roughly $53,000, for example. (Actual savings depend on the corporation’s province and applicable tax rates.)

There is a technical step involved. The past service amount triggers a Past Service Pension Adjustment (PSPA) that Canada Revenue Agency (CRA) applies against the plan member’s existing RRSP room. A portion of the plan member’s RRSP assets is typically transferred directly to the IPP to help satisfy the PSPA, with the corporation contributing the remainder.

Why IPP assets have creditor protection your RRSP may not

For professionals in higher-liability fields — physicians, surgeons, engineers, lawyers — asset protection is a meaningful planning consideration. IPP assets are held in a separate trust and are generally creditor-proof, including against claims that arise outside of bankruptcy.

RRSP creditor protection, by contrast, varies by province. In some jurisdictions, RRSP assets receive limited protection outside of a formal bankruptcy proceeding. For a professional with malpractice exposure or business liability, the IPP structure can meaningfully reduce that risk.

There is a genuine trade-off, however. IPP funds are locked in. You cannot make ad hoc withdrawals the way you can with an RRSP. At retirement, the plan converts to a pension income stream or a locked-in retirement account (LIRA). Professionals who value the flexibility to access capital in retirement will need to weigh that constraint carefully.

What to do before making the switch

Setting up an IPP is not a weekend project. Expect to pay $3,000 to $6,000 in actuarial and legal fees at setup, plus $2,000 to $4,000 annually in ongoing administration costs. At lower income levels or shorter time horizons, those costs can erode the advantage. The strategy becomes compelling for most professionals earning $150,000 or more in T4 salary with 15 or more years of corporate employment history.

The IPP also imposes a mandatory funding obligation on the corporation. Unlike an RRSP — where you can simply skip a year — the sponsoring company is legally required to make annual contributions. For businesses with variable cash flow, that rigidity can be a constraint.

For the right candidate, though, the math is straightforward: the RRSP ceiling has a fixed $33,810 upper limit in 2026, while the IPP has no fixed cap. After age 40, every year you spend at the RRSP maximum instead of an IPP is a year of contribution room that cannot be recovered.

What to do now

• If you are over 40 with consistent T4 income of $100,000 or more from your corporation, get an IPP actuarial assessment — most actuarial firms offer a preliminary analysis at no cost.
• Ask your CPA or adviser whether past service funding back to 1991 could trigger a six-figure corporate tax deduction this year.
• Confirm your compensation structure: IPP requires pensionable T4 employment income — professionals paid entirely by dividends do not qualify until they restructure.
• Weigh the flexibility trade-off: IPP assets are locked in at retirement; RRSP-to-RRIF conversion offers more access to capital if you anticipate needing it.
• Budget $3,000 to $6,000 for setup costs and $2,000 to $4,000 annually for administration — ensure the contribution advantage at your income level justifies the cost.