The DPSP is an approved agreement according to CRA (Canada Revenue Agency) requirements pursuant to which an employer can share the profits of his business with all his employees or group of employees.
This plan is quite flexible as it is not subject to laws concerning pension plans and the employer is not obligated to make a minimum contribution.
In general, if the business does not make any profits, no contributions can be made into the plan. The employer can calculate his contributions based on his profits or as a percentage of his employees’ compensation.
The employer can also obligate the employee to make contributions to a group RRSP and commit to pay an equivalent contribution into the DPSP. Only the employer can make contributions to a DPSP.
Advantages of a DPSP
- Incites employees to participate in the business’s success
- Acts as a complement to the group or individual RRSP with an incentive plan for employees
- Contributions made to a DPSP and operational costs are tax deductible for the employer
- Investment income accumulates tax sheltered like in an RRSP
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