Tax
Your RRSP deduction was a loan. Did anyone read you the terms?
A deduction does not save the tax. It moves it, to a rate neither of you has seen yet.
Retirement
Why does your RRSP shelter less of your income every year you succeed?
RRSP room is eighteen percent of earned income up to a dollar cap, and the cap does not move with you.
You incorporated. You maxed the RRSP most years. You left money in the corporation because that is what everyone said to do.
So why does it feel like the corporation is getting richer and you are not?
That is not a discipline problem. It is a structural one, and the ceiling is half of it.
What it comes to
9.7%
What the 2026 RRSP cap actually shelters at $350,000 of T4 income
The cap is $33,810. At $150,000 of T4 income that is the full 18%. At $250,000 it is 13.5%. At $350,000, 9.7%. Nothing went wrong. The ceiling just does not move with you.
What share of your income is the RRSP actually sheltering?
RRSP room is 18% of last year's earned income, capped at a dollar limit. For 2026 that cap is $33,810.
At $150,000 of T4 income you are sheltering the full 18%. At $250,000, that same $33,810 is 13.5% of what you earned. At $350,000 it is 9.7%.
The more successful you get, the smaller the share of your income the RRSP shelters. It is the same $33,810 whether you are thirty-five or sixty.
$33,810
RRSP dollar limit, 2026. Federal, so the same in every province.
Reconfirm against the CRA site before acting. Money purchase limit $35,390, YMPE $74,600.
Where does the money go once the ceiling is reached?
Money kept in the corporation past the RRSP limit does not disappear. It becomes corporate investment income.
In BC that is taxed at roughly 50.67% combined. Part of it is refundable eventually, but only once you pay it out as a dividend, and in the meantime it is an unfriendly rate to be earning at.
Worse, passive income above a threshold starts grinding down your access to the small business rate on the active income you are still working for. So the pile of cash you are keeping for later is quietly raising the tax on the work you are doing now.
50.67%
BC 2026 combined rate on investment income inside a CCPC
Indexes annually. Part of it is refundable once dividends are paid, so the headline overstates the real cost, and it is still a rate worth noticing on a growing balance.
What is the second plan, and why is the room age-weighted?
There is a second registered plan in the Income Tax Act, and it is a defined benefit pension plan built around one person.
An RRSP works forward. Put money in, hope it grows, and whatever it grew to is your retirement. An Individual Pension Plan works backward from a promise. Two percent of your best-three-years average salary, per year of service, capped by the CRA's defined benefit limit of $3,932.22 per year of service for 2026, which works out to roughly a $196,600 salary ceiling per year.
An actuary calculates what has to go in to fund that promise. Your corporation contributes it, and your corporation deducts it. You never personally contribute a cent. The room is age-weighted because the closer you are to retirement, the less time the money has to grow, so the actuary needs a bigger contribution to fund the same promised pension.
Which is why it is sometimes described as a young plan for an older participant. Worth a look from about forty, and it becomes substantial from forty-five on.
What does the gap look like on a real file?
Here is the sample case from our own material, and every figure in it carries a verify flag. An incorporated professional at fifty-eight, a $700,000 RRSP, twenty-seven recognised years of past service.
Initial IPP funding comes to $840,900. Of that, $532,000 is a qualifying transfer straight out of the existing RRSP, and $308,900 is a past-service contribution the corporation deducts. That is a large one-time deduction in year one, and it is the part most people have never heard of.
Then the ongoing contributions widen every year, because the IPP contribution grows as a share of income while the RRSP stays pinned at 18% and the dollar cap. The gap compounds for as long as the plan runs.
$308,900
The past-service contribution in year one of the sample case. Illustrative.
The age-58 sample uses a 7.5% illustrative growth assumption carried from an older illustration. That is not a guaranteed return. Your actuary revalues the plan periodically using current prescribed assumptions, which will differ.
What do you give up to get one?
An IPP is locked in and it is more complicated than an RRSP. There is an actuary, there are annual filings, and there is a plan you cannot casually unwind.
You need to be incorporated and to have been for a while, and you need to be paying yourself T4 salary. Pure dividends create no RRSP room and no IPP room either, which catches a lot of people who were told dividends were always better.
What comes with it and is not on any brochure: pension assets are generally exempt from seizure, and pension-law protection tends to be more consistent than RRSP protection, which varies by province. Pension income splits with a spouse at any age, where RRIF income only splits after sixty-five. If markets underperform, the corporation makes up the shortfall and deducts it, where on the RRSP path you absorb it and retire on less. The actuarial and administration fees are paid and deducted by the corporation. And it takes retained earnings off the balance sheet, which matters if you ever sell the practice.
If you are thirty-five, an RRSP is probably still your answer. If you are fifty-two, incorporated, taking salary, and watching the corporate investment account grow while your RRSP room stays flat, this is worth an afternoon.
The arithmetic
Scrolls sideways on a narrow screen.
| Year | T4 income | IPP contribution | RRSP room | The gap |
|---|---|---|---|---|
| Year 1, age 58 | $200,000 | $51,000 (25.5%) | $30,780 | +$20,220 |
| Year 4, age 61 | $235,099 | $63,476 (27.0%) | $35,240 | +$28,236 |
| Year 8, age 65 | $291,662 | $84,582 (29.0%) | $42,207 | +$42,375 |
| By sixty-five in that same case: $2,220,700 in the IPP producing $145,700 a year of pension, against $1,348,800 on the RRSP path producing roughly $80,100. The age-58 sample uses a 7.5% illustrative growth assumption carried from an older illustration, which is not a guaranteed return. Not a projection for any individual. Every past-service calculation is run by an actuary from actual T4 history. | ||||
This week
None of them needs us, and none of them needs an appointment.
One division, and two things to ask
When this is not your problem
An IPP is the wrong answer for a lot of the people who will read this page. It is locked in, it costs money to run every year, and it commits the corporation to funding obligations that do not care whether this was a good year. On lumpy income that is often the reason not to do it. If you are under about forty-five, or you take dividends rather than salary, or the corporation's income moves around a great deal, the RRSP is very probably still your instrument and we would say so inside the first fifteen minutes. It is also worth being blunt about the figures above. They are illustrations from our own material carrying a 7.5% growth assumption from an older sample, and your actuary will produce a different number using current prescribed rates. The shape holds. The numbers are not yours until an actuary has run your T4 history.
Is this one actually happening on your file?
Fifteen minutes on the phone is usually enough to tell. You describe the structure, we ask questions, and nothing is presented at you. There is nothing to send in advance and nothing arrives afterwards unless you ask for it.
Find out whether the age arithmetic worksA short member profile and your T4 history produce a personalised illustration in a couple of days. Finding out costs nothing and commits you to nothing.
Read next
Corporate structure
There are four ways out of your corporation. Which one were you shown?
The cash has to leave by one of those doors, and the spread between the widest and the narrowest is the whole of it.
The article
There is a second pension plan built into the Income Tax Act.
Your RRSP shelters a smaller share of your income every year you get more successful. An Individual Pension Plan works the opposite way.
Sources and cautions
Every figure here is illustrative, and the assumptions matter. 2026 CRA limits used: RRSP dollar limit $33,810, money purchase limit $35,390, defined benefit limit $3,932.22 per year of service, YMPE $74,600. Reconfirm against the CRA site before acting. BC 2026 combined rates: top personal 53.50%, non-eligible dividend 48.89%, eligible dividend 36.54%, small business corporate 11%, general corporate 27%, CCPC passive investment income 50.67%. These index annually. The age-58 sample case uses a 7.5% illustrative growth assumption from an older illustration; that is not a guaranteed return, and your actuary revalues the plan periodically using current prescribed assumptions which will differ. Sample-case figures are not a projection for any individual, and every past-service calculation is run by an actuary from actual T4 history. General information, not tax or investment advice, and not a recommendation to establish any plan. Prabhjit Virk is not a Canadian CPA. Life insurance licences are held in British Columbia, Alberta and Ontario; Quebec is pending. Provincial rates and rules quoted here are British Columbia figures unless stated. Alberta and Ontario differ.