Deferred profit sharing plan (DPSP)

A deferred profit sharing plan, or DPSP, is an employer-funded plan registered under the Income Tax Act that shares profits with employees. A buyer meets it among the seller’s employee benefits, where a trustee and the employer both have roles. See what happens to the pension or benefits plan.

What the Act requires

Section 147(1) of the Income Tax Act defines the plan as a profit sharing plan accepted by the Minister for registration, on application by a trustee under the plan and an employer of employees who are beneficiaries. Under s.147(2), the Minister shall not accept a plan unless, in the Minister’s opinion, it complies with listed conditions, and later subsections add more. They include a stipulation that contributions come only from an employer for its employees who are beneficiaries, or from a transfer under s.147(19), and that the plan pays no amount to a beneficiary by way of loan. The CRA publishes guidance for employers and trustees on registering, amending, reporting, contributing to, paying from and closing a plan.

What to check or ask

• Ask for the plan text, the registration and the name of the trustee.
• Ask whether the CRA filing and reporting obligations are up to date.
• Ask how the plan is treated under the deal structure, and what happens to employees’ balances.