Riscario

A Deferred Profit-Sharing Plan (DPSP) is an employer-funded incentive program in the form of a trust registered with CRA.

• employees cannot make contributions (mandatory or voluntary)
• maximum contribution = min{18% of employee’s current year earnings, 50% of RPP limit}
  • max $7,750 (in 2004)

Eligibility

• a class of employees
• not available to
  • proprietors
  • partners
  • shareholders owning 10⁺% of voting shares
  • non-arm’s-length parties to the above (e.g., spouse or child)
• no plan benefits can be related to a shareholder who owns more than 10% of voting shares

Vesting

• must permit vesting within two years of the employee joining the plan
• the employee can withdraw vested amounts

Plan Wording

• plan must clearly state
  • the effective date and eligibility of participants
  • retirement age
  • benefit on death and termination
  • how payments are to be made
  • how plan can be amended or terminated

Contributions

• contributions can be made up to 120 days after the employer’s fiscal year end

Plan Investments

• investments similar to RRSPs, but can’t hold employer debt
• can buy employer treasury shares
• up to 30% of plan assets can be in foreign investments
• can’t transfer assets except to
  • a registered pension plan
  • RRSP
  • another DPSP with 10⁺ members and at least one year old
• cannot assignassign or use as loan collateral

Withdrawals

• taxed as ordinary income except for accumulated capital gains on employers shares transferred to the plan
• partial withdrawals are permitted
• vested amounts become payable within 90 days of termination of employment, age 69, death
• withdrawals must start by the earlier of
  • 90 days following the employee's retirement or
  • 69th birthday

Termination

• departing employee can
  • cash in and pay tax
  • roll into RRSP tax-free
  • roll into new employers' DPSP tax-free
  • buy a life annuity

Taxation

• taxed as ordinary income to the employee
• tax-free accumulation
• if common shares in the plan are transferred to an employee, the capital gains are deferred until the employee sells the shares