Tax rules provide for the transfer of proceeds from a defined benefit pension plan (DB) into another defined benefit plan, an RRSP, or an individual pension plan (IPP). This maintains the tax-deferred status of the pension proceeds. There are prescribed transfer limits, however, that apply to the amount that can be transferred to an RRSP. The portion of the pension benefit that exceeds the prescribed limit must be received by the plan holder as taxable income. This is often about 50% of the commuted value of the pension.
The federal government is tightening the rules to discourage taxpayers from incorporating for the sole purpose of setting up an IPP in order to shelter 100% of their pension proceeds.
