Fact Sheet - Connected persons and tax deductions

Reviewed November 3, 2026. Figures are for 2026 unless stated otherwise.

The tax-deductible contributions that can be made to an individual pension plan (or under the defined benefit component of a personal pension plan) depend, in part, on whether the pension plan is considered a designated plan or not.

A plan containing a defined benefit provision is a designated plan in a year when the pension credits of specified individuals exceed 50% of the total pension credits under the plan; once designated, it generally stays designated the following year.

To be considered a specified individual one usually falls under one of two categories:

• The member is a “connected person” or

• The member earns more than 2.5 times the Year’s Maximum Pensionable Earnings (in 2026, the YMPE is $74,600, so the income threshold is $186,500).

A connected person, generally, owns 10% or more of the shares of the company sponsoring the IPP or PPP.

Therefore, in 2026 someone earning $200,000 who owns 11% of the shares would be a specified individual under both tests. Someone earning $50,000 and owning 11% would also be a specified individual by virtue of being a connected person.

Ultimately, being a designated plan means that specific funding restrictions and actuarial assumptions must be used in calculating the maximum pension contributions made by the sponsoring company.

Were it not for the application of these maximum funding rules, a company contributing to a pension plan would be allowed to make even larger tax-deductible contributions.