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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:

bullet The contributions to the plan are made based on the profits of the company.
bullet This plan may be set up for some or all of the employees.
bullet Employees cannot contribute to the plan, other than a direct transfer from another DPSP, after 1990.
bullet Contributions are not taxable to the employee.
bullet Income in the plan is not taxable.
bullet Pension adjustment (PA) from DPSP reduces the amount that the employee can contribute to an RRSP.
bullet The employee is taxed when withdrawals are made from the plan.
bullet A DPSP may provide that, on election by the beneficiary, all or any part of the amounts payable to the beneficiary may be paid:
bullets. 147(2)(k)(v) in equal instalments payable not less frequently than annually over a period not exceeding 10 years from the day on which the amount became payable, or
bullets. 147(2)(k)(vi) to a licensed annuities provider to purchase an annuity for the beneficiary, where:
bullet(A) annuity payments begin no later than the end of the year in which the beneficiary attains 71 years of age, and
bullet(B) the guaranteed term, if any, of the annuity does not exceed 15 years.
bullet 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

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