Deferred Profit Sharing Plans
Deferred Profit Sharing Plans are designed to reward good performance and create a sense of partnership between the plan sponsor and the members of the plan. This plan type is only available as a group arrangement.
What is a Deferred Profit Sharing Plan?
- A DPSP is an employer-sponsored profit sharing plan registered as a trust with the Canada Revenue
- On a periodic basis, the plan sponsor shares business profits with the plan members by contributing to the DPSP on each plan member’s behalf. Member contributions are not permitted.
- A DPSP gives the plan sponsor the option to link contributions to profitability of the business. There is no minimum required contribution – if there is negligible profit in a year, the sponsor is not required to contribute. However, DPSP’s are subject to maximum contribution limits set by CRA.
- Sponsor contributions are tax deductible for the plan sponsor. Members do not pay income tax on DPSP contributions until funds are withdrawn.
- A DPSP is usually offered in conjunction with a group RRSP. The employee contributes to the group RRSP and the employer’s matching contributions are deposited to the DPSP.