Deferred Profit-Sharing Plan (DPSP)

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)


  • 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


  • 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 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


  • 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


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


  • 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

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