Deferred Profit Sharing Plan (DPSP)

A Deferred Profit Sharing Plan (DPSP) is a tax-deferred retirement savings plan offered by employers in Canada, where only the employer makes contributions on behalf of eligible employees. These contributions are typically based on the company's profits, but employers may also make regular fixed contributions, regardless of actual profits.

DPSPs are registered with the Canada Revenue Agency (CRA), and employer contributions are tax-deductible for the business. Contributions made to a DPSP do not count as taxable income to the employee at the time they are made. Instead, taxes are deferred until the funds are withdrawn, typically at retirement.

DPSPs are often used alongside Group RRSPs as part of a broader group retirement strategy.

Key Features of a DPSP

‍Important Considerations

• ‍‍If an employee leaves the company before becoming vested, they forfeit the employer’s contributions.
• DPSPs can be a cost-effective way for employers to reward and retain employees, especially when paired with a Group RRSP.
• Contributions to a DPSP reduce the employee’s RRSP contribution room for the following year via a Pension Adjustment (PA).

Summary
A Deferred Profit Sharing Plan (DPSP) is a flexible and tax-efficient group retirement savings option in Canada, funded exclusively by employers. It rewards employees based on company performance or predetermined contribution levels and offers tax-deferred growth to support retirement goals.