Individual Pension Plans After Budget 2026: What Would Change

Are these IPP changes law yet?

No. The federal budget came out on November 5, 2026. It proposes these changes, but Parliament has not passed them. Details can change before they become law.

The budget's tax section calls them measures "proposed in Budget 2026". It says each one "would" apply from a set date. Until a law passes, today's IPP rules still apply.

These are federal income tax rules. If passed, they would apply to IPPs in Ontario the same way as in the rest of Canada.

What would change, and when?

There are four proposals that touch an IPP. One starts in 2027. Two start in 2028. One covers any pension plan the CRA revokes, or cancels, after 2026.

For the other items in the budget, see our Budget 2026 summary for business owners.

Which plans would count as an IPP from 2027?

More plans would. Today, a plan is generally an IPP if it has fewer than four members and at least one is related to an employer in the plan. The budget would add plans where every member is close to the owner.

An IPP is a defined benefit pension plan. Defined benefit means a formula sets the pension. The budget describes IPPs as a way for a company to give its owner-manager a pension. Our Individual Pension Plan guide explains how they work today.

IPPs have extra rules that other pension plans do not. The budget says some plans add related members to get past three members and avoid those rules. From January 1, 2027, a plan would also be an IPP if all of its members are either:

• related to an employer in the plan, or
• not at arm's length with a member who is. Arm's length means dealing with each other like strangers.

So a plan with four or more members, all close to the owner, could become an IPP. The IPP rules would then apply to it.

What investment rules would IPPs follow from 2028?

The same three sets of rules that already apply to RRSPs, RRIFs and TFSAs. Today, IPPs do not have these rules.

• Advantage rules. These stop people from using the plan's tax shelter in ways it was not meant for. One example in the budget is shifting returns from a taxed investment into the plan.
• Prohibited investment rules. These generally keep the plan's investments at arm's length, as plain "portfolio" investments.
• Non-qualified investment rules. These limit the kinds of investments a plan may hold.

If an IPP bought a non-qualified or prohibited investment, the plan's controlling individual would owe a tax. It would be 50% of the investment's fair market value, which is what it would sell for. For an advantage, the tax would be 100% of its value.

This would start January 1, 2028. The budget says transition rules would apply to investments bought before 2028 that become non-qualified or prohibited on that date. Those rules matter for any plan that already holds unusual investments.

What is the 200% surplus test?

It is a new limit on how much extra money an IPP can hold. If a plan's assets were worth more than 200% of its pension liabilities, the CRA could revoke its registration. Pension liabilities are what the plan owes in pensions.

Today's rules already deal with surplus in one way. When a pension plan's assets are over 125% of its liabilities, the employer generally must stop putting money in until the surplus drops. The budget says nothing forces that surplus out of the plan, and income on it stays sheltered from tax.

The budget explains why it is aiming at IPPs. Some have little or no new money going in, and the pension they owe stays about the same. Their assets can then grow far past what the pension needs.

A plan over the line would not lose its registration at once. The CRA must send a notice of intent to revoke at least 30 days before it revokes a plan. The budget says that gives the plan's administrator time to act, for example by taking out the extra amounts.

What happens if a pension plan loses its registration?

The budget would spell out the tax results. Today, the law does not fully set them out. These rules would cover any registered pension plan revoked after 2026, not only IPPs.

• The revoked plan would owe a special tax of 10% of the value of its property just before it was revoked. The CRA could waive or cancel this tax.
• The plan would be treated as a retirement compensation arrangement. That is a different kind of retirement plan under the tax law.
• The value of the plan's property, less any revocation tax, would be treated as put into that arrangement. A 50% refundable tax would then be due on that amount.

A refundable tax is held by the government and can come back later under its own rules. Your accountant can explain how that would work for a plan.

Who would these changes matter to?

That depends on the plan, and your accountant and the plan's actuary are the right people to say. From the budget's own reasons, the changes aim at three kinds of IPP:

• plans with family or other related members added to get past three members,
• plans that hold investments the RRSP and TFSA rules would not allow, and
• plans whose assets have grown far past the pension they owe.

The IPP proposals do not change the basics. An IPP still needs a salary from your company, since dividends do not count. The money is still locked in for your pension. If investments fall short, your company may still need to put in more.

What should you ask your accountant and actuary?

Bring the plan's latest actuarial report and a list of what the plan holds. Then ask:

1. Would our plan count as an IPP under the wider definition from 2027?
2. Does the plan hold anything that could be non-qualified or prohibited from 2028?
3. How do the plan's assets compare with its pension liabilities today?
4. If the plan could pass 200%, what are the options, and what would each cost in tax?
5. What would change if the final law differs from the budget?

Your accountant leads the tax side, and we work with them. If you are thinking about a new IPP, our IPP page covers who it can fit. Owners comparing ways to use extra money in the company can also read our guide to retained earnings.

Sources

• Department of Finance Canada, Budget 2026: Tax measures, supplementary information
• Justice Laws, Income Tax Regulations, section 8300 (definition of individual pension plan)