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Deferred Profit Sharing Plan (DPSP)

Deferred-Profit-Sharing-Plan-DPSPDeferred profit sharing plans can be used as a pension plan or as a supplement to a company's group RRSP. In a deferred profit sharing plan the employer is referred to as the plan sponsor and the employee is referred to as the plan member who is also the beneficiary. All deferred profit sharing plans must be registered with Canada Revenue Agency (CRA).

In a deferred profit sharing plan the employer contributes an amount "out of profits," or related to profits into a trust fund. Contributions are tax deductible to the employer. The accumulated employer contributions grow tax sheltered and are not taxable to the employee until they are paid out. Employee contributions are not permitted.

Employer contributions into a deferred profit sharing plan are limited to the lesser of 18% of the employees compensations for the year or a dollar limit equal to one half of the defined contribution pension plan limit.

The dollar amount equal to one half of the defined contribution pension plan's limit is as follows:

  • 1998 through 2002 - $6,750

  • 2003 - $7,250

  • 2004 - $7,750

  • 2005 indexed

Amounts allocated to the employee's (plan members) account must vest to the employee (plan member) after two years of membership in the plan, or earlier if the plan allows for it. Any non-vested amounts are forfeited by a terminating employee. The forfeited amount must either be allocated to other plan members (employees) or refunded to the employer no later than the end of the following year. 

A DPSP allow plan members the right to withdraw vested benefits from the plan at any time. However a member's vested benefit must be paid no later than 90 days after the earliest of:

    1. If the employee (plan member) is vested, a specified dollar amount may be permitted to be withdrawn per calendar year;

    2. Death of the employee (plan member);

    3. Termination of employment of the employee (plan member);

    4. Attainment of age 71 by the employee (plan member);

    5. Termination of the plan by the employer (plan sponsor).

Deferred Profit Sharing Plan Design for Employers:

    1. No minimum employer contributions.

    2. Employer contributions are not subject to payroll taxes.

    3. Only employer contributions are permitted into the plan.

    4. The employer may impose a vesting period of up to 2 years.

    5. Withdrawals can be restricted to termination, on death, or retirement.

    6. Owners or relatives of owners cannot participate in the plan.

    7. Terminated employees can withdraw the full vested amount subject to taxation.

    8. Creates a pension adjustment.

    9. Can be used to share profits with employees or as a pension plan.


Contact Us to Set Up or Review Your Deferred Profit Sharing Plan


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