What is a Deferred Profit Sharing Plan (DPSP)?



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Unlike other retirement options sponsored by the worker (employee), the Deferred Profit Sharing Plan (DPSP) allows employees to receive a share of the company’s profits, which are also tax-free.

This contribution is made by an employer and used for retirement savings among employees. Employees in a DPSP get a pro-rata share of the company’s profits. This share can be invested in a tax-free account.

Deferred Profit Sharing Plan (DPSP) Meaning

A Deferred Profit Sharing Plan (DPSP) is a Canadian Profit-sharing plan sponsored by employers for retirement savings. It is often used conjointly with other retirement plans like the EI (Employment Insurance) or the RRS (Registered Retirement Savings Plan). 

The Deferred Profit Sharing Plan (DSPS) is enlisted with the Canadian Revenue Agency (CRA). And every contribution by an employer in a DPSP is tax-deductible while employees enjoy tax-deferred growth. Employers don’t have to pay federal taxes on the fund received from the DPSP until it is withdrawn. 

Since companies report their proceeds yearly, DPSP can be regular or irregular contributions depending on its operation mode. They can decide to share part of the profit with their employees. Companies have 120 days after the end of the fiscal year to make contributions towards DPSP. 

The funds contributed can be utilized by employees in different ways. They can invest in various funds, stocks, or bonds. They can also decide to buy company stock with the money. Once an employee signs up for the DPSP, they’ll have to assign a beneficiary. This person can be a spouse or long-term partner.

How Deferred Profit Sharing Plan (DPSP) Works

Employers may choose to share the proceeds from the business with their employees via the DPSP. Employers who get a share of these proceeds do not pay tax on the money received via the DPSP till it is withdrawn.

If an employer chooses to be involved in the DPSP with his/her employees (some or all of them), they are referred to as the plan’s sponsor. Employees who receive these proceeds from their places of work have the money managed by a designated trustee.

The Deferred Profit Sharing Plan allows employees to have funds that mature without tax, which often leads to more investment for them over time. The Profit Plan is withdrawable in halves or in full within two years of an employee joining in the plan, there which taxes are then paid.

DPSP contributions reduce registered Retirement Savings Plan (RRSP) contribution limits created the year before. Contributions are tax-deductible to the employer; people don’t pay taxes on contributions till the cash is withdrawn. Investment earnings are tax-sheltered; people don’t pay tax on earnings till a withdrawal is initiated.

Generally, DPSPs are combined with pension plans like RRSP to produce workers with financial retirement plans. Most plans permit people to choose who their DPSP fund is invested with, although some firms might need workers to get company stock with their contributions.

When an employee leaves an employer, they will move their DPSP cash to an RRSP or a Registered Retirement Income Fund (RRIF) or use it for a regular payment option like an annuity. They can also choose to withdraw, although that will trigger a tax event with a tax payment needed within the year the cash was received.

Deferred Profit Sharing Plans and Employers

A deferred profit-sharing conjoined with a retirement savings plan will be a less expensive method to a specific-contribution plan for employers. The advantages of the Deferred Profit Sharing Plan (DPSP) are:

  • Tax Benefits

Employees get to enjoy tax-free funds until withdrawal. Contributions are paid from pre-tax business financial gain and are thus tax-deductible and exempted from each provincial and federal payroll tax.

  • Cost

DPSPs is a less expensive method to manage a defined-contribution plan as it is cost-effective.

Employee retention

DPSPs provide employers a valuable tool to ensure that their best talent is incentivized to stay around (such plans are tied to company profits and are subject to a biennial vesting period). 

FAQ on Deferred Profit-Sharing Plan

Which is better, an RRSP or a DPSP? (DPSP Vs. RRSP)

First, let’s compare the basics of both the Registered Retirement Savings Plan (RRSP) and the Deferred Profit Sharing Plan (DPSP)

Basics of Registered Retirement Savings Plans

The Registered Retirement Savings Plan is a standard part of pension and savings plans. If you opt for a registered retirement savings plan, your employees’ contributions are manually subtracted from their paychecks. 

Employees decide what proportion they want to contribute—either a set quantity or a proportion of their income. The pre-set portion of the fund to donate will be funded towards your retirement. Employers can even add funds to their employees’ RRSPs.

Spousal accounts are allowed with these plans; employees can use the opportunity to split their retirement savings plan with their spouses. There are no restrictions on eligibility; therefore, these arrangements are a decent one-size-fits-all addition to your pension and savings plan.

If you opt to contribute funds to your employees’ plans as an employer, that money is theirs, even if they quit directly. There’s no means for firms to line up a vesting amount or induce a refund that they’ve already contributed on behalf of their employees.

Basics of Deferred Profit-Sharing Plan

Deferred profit-sharing plans differ from RRSPs because only employers are allowed to contribute to them. Business house owners will share their profits with some or all of their staff on their schedules. 

You’ll be able to contribute to the DPSP monthly, quarterly, or whenever you would like to reward your staff by sharing your business’s profits with them. Additionally, you’ll be able to pay your employees’ bonuses into a DPSP.

The contributions you create to your employees’ DPSPs count against their RRSP contribution space; hence it’s necessary to observe contribution limits.

Only employees of an organization can partake in DPSPs. You can not build spousal contributions. There are restrictions on those who own 10% of the company share or their family member. These sets of people are not allowed to participate. Businesses ought to carefully monitor compliance to ensure that only qualified employees are added to the plan.

Any contributions you create to the DPSP are not accessible immediately. It often takes as long as two years before employees can access the funds in DPSP. If they quit or get laid-off before that point, you get the money back. If you’re operating with a restricted compensation budget and wish to manage your worker plan’s prices, not enrolling short-term workers will help a lot.

Why You Need Both DPSP and RRSP

The two varieties of plans have some similarities, even though they have enough variation that companies will take delight in giving each. If you would like to match your employees’ RRSP contributions, adding your funds to a DPSP will facilitate your contributions. That way, if employees don’t stick with your company for long, you get to keep your contributions. 

Having a biennial vesting amount also offers employees the motivation to remain with your company for the long term, facilitating increased retention and scale back turnover.

Employees benefit from DPSP when employers contribute funds to a DPSP rather than an RRSP. This is often because employers’ contributions to RRSPs are subject to an equivalent deduction that salaries are subject to too, like workers’ compensation, state insurance, and CPP deductions

Employer’s contributions to DPSPs aren’t subject to any of those deductions; hence employees get to retain more money.

Offering each variety of plans makes your pension and benefits package much more enticing to potential employees. Creating RRSP contributions could be a very generous profit on its own; however, after you build those contributions into a DPSP, employees get to enjoy the subsequent total compensation. This helps your business stand out from alternative firms solely giving Registered Retirement Savings Plans (RRSP).

Can a DPSP be transferred to an RRSP?

Yes. A Deferred Profit Sharing Plan can be transferred to a Registered Retirement Savings Plan. When a worker leaves a company or an organization, they can take their DPSP with them and move it to other Savings options like the RRIF and the RRSP. 

It is wise to transfer a DPSP into an RRSP to avoid taxes, especially if you have a huge fund in your DPSP. To do this, you’ll need an RRSP account already set up beforehand, as you might incur a hefty tax for a sudden or instant switch from your DPSP to your RRSP. 

Again, you must be 71 years of age or younger to make this transfer from your DPSP to your RRSP, as this is the maximum age allowed in the RRSP. Also, If an employee lost his/her spouse, they can receive the DPSP account of their spouse, which they can transfer to their RRSP account. 

In case of a divorce or a separation between spouses, each party gets a share of their partner’s DPSP, which can be transferred to their respective RRSP accounts.

Is DPSP the same as RRSP?

No. The Registered Retirement Savings Plan is meant to take funds by the employee, while the Deferred Profit Sharing Plan does the opposite; it accepts funds from the employers’ contribution. They are best joined for a maximum value at retirement, as stated above.

Are DPSP contributions a taxable Benefit?

No. Taxes are not paid on a Deferred Profit Sharing Plan contributions until two years when it is withdrawable and taxable.


An employee savings plan (ESP) is a general investment account provided by an employer to set aside some of their pre-tax wages for retirement savings or alternative long-term goals like paying for faculty tuition or buying a home. In comparison, a Deferred Profit Sharing Plan (DPSP) is a Canadian Profit-sharing plan sponsored by the employer for retirement savings amongst the employees. The difference is that the employee sponsors the former while the employer sponsors the latter.


A deferred profit-sharing plan (DPSP) is similar to the Defined Contribution Pension Plan (DCPP) because they both have their employer distribute some of the pre-tax profits to chosen workers. A Deferred Profit Sharing Plan (DPSP) is an arrangement similar to a Defined Contribution Pension Plan (DCPP) whereby an employer distributes a portion of pre-tax profits to selected employees.

The pension amount is not known in advance. It is determined by the number of contributions, investment returns, annuity, and interest rates of the company at the plan member’s retirement. In contrast to a DPSP, plan members cannot contribute, and the employer’s contribution depends on company profits.

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Kareena Maya

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Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.

Kareena Maya is a freelance writer focused on the personal finance and travel spaces. He frequently writes about credit cards, banking, student loans, insurance, travel rewards and more. His work has been featured in publications such as Forbes Advisor, Bankrate, Credit Karma, Finance Buzz, The Ascent and Student Loan Planner.