A deferred profit sharing plan, or DPSP, is a Canadian employer-sponsored retirement arrangement in which a company puts a share of its profits into a trust account held in each eligible employee’s name. Only the employer contributes. The money grows tax-free inside the plan, and tax is paid only when the funds come out. For 2026, the maximum employer contribution per employee is $17,695.
How the Plan Is Structured
A DPSP has to be registered with the Canada Revenue Agency under Section 147 of the Income Tax Act.1Department of Justice. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 147 The employer applies jointly with a trustee, and once the plan is accepted, all contributions flow into a trust. That trust structure is a legal requirement, not an option.
The practical consequence for you is important. The trustee, not the employer, is the legal owner of the plan assets and manages them for the benefit of plan members. Plan money sits apart from the company’s general business accounts. If the sponsoring company runs into financial trouble, creditors cannot reach the funds inside the DPSP trust. The employer’s role ends at funding; the trustee handles compliance and investment oversight.
What the Employer Can Contribute
Every dollar in a DPSP comes from the employer. Employees cannot add their own money. That rule is one of the sharpest lines separating a DPSP from other retirement savings vehicles.
The annual employer contribution for each member is capped at the lesser of 18% of the employee’s compensation or half the Money Purchase limit for the year.2Canada Revenue Agency. Contributing to a Deferred Profit Sharing Plan For 2026, the Money Purchase limit is $35,390, which puts the DPSP ceiling at $17,695 per employee.3Canada Revenue Agency. MP, DB, RRSP, DPSP, ALDA, TFSA Limits, YMPE and the YAMPE That is up from $16,245 in 2024 and $16,905 in 2025. The 18% cap is the binding limit for most employees. Someone earning $80,000 can receive no more than $14,400 in a year, well under the dollar ceiling.
The employer gets a tax deduction for what it contributes, and you pay no tax on the amount deposited. The employer is not required to contribute every year. In a year with no profits, it can skip.
Each contribution produces a pension adjustment, or PA, that reduces your RRSP contribution room for the following year. The PA appears in Box 52 of your T4, so you can see exactly how much RRSP room your DPSP participation uses up.
Who Can Join
The main legal restriction is the non-arm’s length rule. If you own 10% or more of any class of shares in the sponsoring company, you cannot be a member of its DPSP.1Department of Justice. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 147 The bar also catches relatives of those significant shareholders. The plans are designed for employees, not for owners and their families.
Within those limits, employers set their own participation rules. Most require a minimum period of service before enrollment, often one year of continuous employment. Once you meet the plan’s criteria, enrollment follows the plan document. There is no opt-out, though from your side there is little reason to want one, since the contributions cost you nothing.
Vesting: When the Money Becomes Yours
Vesting is the point at which employer contributions legally belong to you. The maximum vesting period for a DPSP is two years of plan membership.2Canada Revenue Agency. Contributing to a Deferred Profit Sharing Plan A plan can vest sooner, but not later. That is a shorter window than most other employer-sponsored retirement plans allow.
Leave before you vest and you forfeit the balance. The forfeited amount does not go back into the employer’s bank account. The plan must either redistribute it among the remaining members or apply it against future employer contributions.2Canada Revenue Agency. Contributing to a Deferred Profit Sharing Plan The money stays inside the plan’s trust either way. For someone leaving early, two years of lost employer contributions can be meaningful, especially at higher salary levels.
Taking the Money Out
DPSP distributions usually happen when you retire, leave the employer, or die. While the money is in the plan, it grows without tax. Once it comes out, every dollar is treated as regular income in the year of withdrawal.4Canada Revenue Agency (CRA). Payments From a Deferred Profit Sharing Plan
You generally have three paths. The plan can pay a lump sum, buy an annuity for you from a licensed provider, or transfer the balance directly to another registered plan.
Direct Transfer to an RRSP or RRIF
Section 147(19) of the Income Tax Act allows a tax-free direct transfer of a lump-sum DPSP amount into an RRSP or a RRIF.5Canada Revenue Agency (CRA). Transfers to or From a Deferred Profit Sharing Plan A direct transfer keeps the money sheltered and lets it keep growing until you draw on it in retirement. No withholding tax applies, provided the money moves plan-to-plan without passing through your hands.
Cash Withdrawals
If you take the cash, the plan administrator withholds tax at source before paying you. Outside Quebec, the rates are:
- 10% on amounts up to $5,000
- 20% on amounts from $5,001 to $15,000
- 30% on amounts over $15,000
Quebec residents see lower federal withholding rates of 5%, 10%, and 15%, with Quebec provincial tax applied on top.6Canada Revenue Agency. Tax Rates on Withdrawals Withholding is not the final tax bill. If your marginal rate is higher than the amount withheld, you will owe the difference when you file. Large withdrawals can produce an unwelcome balance owing at tax time if you have not planned for it.
DPSP Compared to a Group RRSP
Many Canadian employers run both a DPSP and a Group RRSP, sometimes side by side. The two work under different rules.
- Who contributes: a DPSP is funded only by the employer. A Group RRSP accepts both employer and employee contributions, and employees usually choose their own contribution rate.
- Vesting: DPSP contributions can be subject to a vesting period of up to two years. Group RRSP contributions vest immediately, including any employer match.
- Retention: the DPSP’s vesting delay gives the employer a retention tool. Leaving before you vest costs you the employer’s DPSP contributions. Walking away from a Group RRSP on day one still means keeping the employer’s share.
- RRSP room: both plans create pension adjustments that reduce your personal RRSP contribution room, through different mechanisms.
A common pairing is a DPSP for employer money, where the vesting period supports retention, with a Group RRSP alongside it for voluntary employee contributions. If your employer offers that combination, you get vesting-protected employer dollars in the DPSP plus the flexibility to add your own savings through the Group RRSP.