Deferred Profit Sharing Plan (DPSP)

Key takeaways
* A DPSP is an employer-sponsored, registered Canadian retirement plan in which only employers make contributions.
* Employer contributions and investment earnings grow tax-deferred; employees pay tax when funds are withdrawn.
* Contributions are flexible and can be tied to company profits; most plans include a vesting period (commonly two years).
* DPSP contributions reduce RRSP contribution room through the pension adjustment mechanism.
* When leaving an employer, vested DPSP funds can usually be transferred to another registered plan, used to buy an annuity, or cashed out (taxable).

What is a DPSP?

A Deferred Profit Sharing Plan (DPSP) is a registered retirement arrangement through which an employer shares business profits with employees. Contributions are made solely by the employer and the amounts contributed, plus investment earnings, accumulate on a tax-deferred basis until withdrawal.

How DPSPs work
* Sponsor and trustee: The employer sponsors the plan; a trustee or administrator holds and manages the plan assets.
* Contributions: Only employers contribute; contributions are generally discretionary and can vary by year based on profits.
* Tax treatment: Contributions are tax-deductible to the employer and not included in the employee’s taxable income until withdrawn. Investment earnings are also tax-deferred.
* Vesting: Most DPSPs include a vesting schedule (commonly two years) before employees fully own employer contributions.
* Investment choice: Many plans let employees select investments for their account, though some plans may have restricted options.
* Transfers and withdrawals: Vested balances can often be transferred to another registered plan (e.g., RRSP/RRIF) or used to purchase an annuity. Cashing out triggers taxation in the year of receipt.

Key rules and limits
* Employee contributions are not permitted—only employers contribute.
* DPSP contributions reduce an employee’s available RRSP contribution room through the pension adjustment process.
* Contribution limit (reference year): the lesser of 18% of the employee’s compensation or a specified dollar maximum (for example, $16,245 in 2024). Check current-year limits with Canada Revenue Agency (CRA).
* Taxes are payable when funds are withdrawn or paid out.

Benefits for employers
* Tax incentives: Contributions are deductible for the employer and typically exempt from payroll taxes.
* Cost and flexibility: DPSPs can be less expensive to administer than defined-benefit pension plans and allow employers to vary contributions according to profitability.
* Employee retention: Vesting provisions can encourage retention.

Death of a plan member
* Surviving spouse or common-law partner: can usually roll over the vested DPSP balance into their own registered retirement plan without immediate tax.
* Other beneficiaries: generally receive cash and must include the amount in income for tax purposes.

Practical considerations
* Review plan documents and speak with your HR department or plan administrator to understand vesting rules, investment options, transfer mechanics, and how DPSP contributions affect your RRSP room.
* Confirm current contribution limits and any recent regulatory changes with the CRA or a financial advisor.

Sources
* Government of Canada — information on registering and administering DPSPs, payments, contribution rules, and pension adjustments.
* RBC Wealth Management — guidance on DPSP design and employer perspectives.