Financial Planning -> Pensions -> Deferred profit sharing plans (DPSPs)
Deferred Profit Sharing Plans (DPSPs)
Income Tax Act s. 147
Deferred Profit Sharing Plans are not regulated by pension legislation, but are registered under and must comply with the Income Tax Act.
Characteristics of a DPSP:
 | The contributions to the plan are made based on the profits of the company. | ||||||||
| This plan may be set up for some or all of the employees. | ||||||||
| Employees cannot contribute to the plan, other than a direct transfer from another DPSP, after 1990. | ||||||||
| Contributions are not taxable to the employee. | ||||||||
| Income in the plan is not taxable. | ||||||||
| Pension adjustment (PA) from DPSP reduces the amount that the employee can contribute to an RRSP. | ||||||||
| The employee is taxed when withdrawals are made from the plan. | ||||||||
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A DPSP may provide that, on election by the beneficiary, all
or any part of the amounts payable to the beneficiary may be paid:
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| DPSP lump sum payments can be transferred tax-free to an RPP, RRSP, or RRIF. |
See also the Canada Revenue Agency (CRA) information circular IC77-1R5 Deferred Profit Sharing Plans.
For information on different types of profit-sharing plans, see the comparison chart on the Human Resources and Social Development Canada (HRSDC) website.
Revised: October 26, 2023