Page 103 - A Canuck's Guide to Financial Literacy 2020

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Deferred Profit-Sharing Plan

Deferred Profit-Sharing Plans (DPSP) are registered investment vehicles set up by the
employer for the benefit of the employees. The plan encourages employers to share the
business’s profits with employees by contributing into the DPSP on a periodic basis.
Employee contributions are not permitted. Contributions into DPSPs affect your RRSP
contribution room and have vesting requirements which are discussed below.

Contributing into a DPSP

Contributions into a DPSP are only permitted by employers. Employees cannot contribute.
The contributions which are voluntarily allows employers to reward their employees and
encourage productivity by sharing part of the company’s profits.

The contributions are tax deductible by the employer and tax-deferred for the employee.
There is no minimum contribution amount but there is a limit on max contributions.

Insiders who own 10% or more of the company’s shares are not allowed to participate in a
DPSP. Related and connected individuals to these insiders are not allowed to participate as
well.

Contribution Limits

Employer contributions are limited to the lesser of

▪ 18% of the employee’s compensation for the year
▪ 1/2 of the money purchase limit for the year

Year MP limit
2020 $27,830
2019 $27,230
2018 $26,500
2017 $26,230
2016 $26,010

Pension Adjustment

Employer contributions into a DPSP lower the RRSP room of the employee the following
year. This is known as the pension adjustment. You will be able to see this on your T4 tax
slip.