Defined-benefit Registered Pension Plans ("RPPs") may be established for the owner-manager of a corporation. Sometimes a spouse or other family member (who is also employed by the corporation) is added as a member of such a plan. The Budget proposes two new tax measures that will apply to these plans (referred to as “Individual Pension Plans” or “IPPs”).
The Budget proposals will require that:
- annual minimum amounts must be withdrawn from IPPs, similar to the current minimum withdrawal requirements from RRIFs, once a plan member reaches the age of 72; and
- contributions made to an IPP that relate to prior years of employment will, in effect, be required to be funded first out of a plan member’s existing RRSP assets or by reducing the individual’s accumulated RRSP contribution room, before new deductible contributions in relation to the past service may be made.
For this purpose, an IPP will be considered a defined benefit RPP when:
- it has three or fewer members, if at least one member is “related” for tax purposes to an employer that participates under the pension plan; or
- it is a "designated plan," if it is reasonable to conclude that the rights of one or more members under the plan exist primarily to avoid this new definition.
For members of IPPs who reached 72 years of age in 2011 or earlier, the required withdrawals will begin in 2012. For those IPP members who reach age 72 after 2011, withdrawals must start in the year in which they attain 72 years of age.
With respect to IPP past service contributions, the new measure will apply to contributions made after Budget Day, except that it will not apply to IPP past service contributions made in respect of past service that was credited to an IPP member before Budget Day under terms of the IPP submitted for registration on or before Budget Day.