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Employer contributions and investment earnings grow tax-deferred; employees pay tax when funds are withdrawn.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. Explore More Resources
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Tax treatment: Contributions are tax-deductible to the employer and not included in the employee’s taxable income until withdrawn.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Taxes are payable when funds are withdrawn or paid out. Explore More Resources
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. Explore More Resources
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. Explore More Resources