Deferred Profit Sharing Plans (DPSP) for Canadian Employers

Current as of October 2026. Government programs, tax rules and prices change. Check the official sources listed at the end of this page before making a decision, and confirm details with a licensed advisor.

What is a DPSP?

A deferred profit sharing plan (DPSP) is an employer-sponsored profit sharing plan that is registered with the Canada Revenue Agency (CRA). In plain terms, it is a way for a business to set aside part of its profits for employees' retirement, with the money growing in a tax-sheltered account until it is paid out.

The defining feature is that only the employer puts money in. Under the CRA's registration conditions, employee contributions have not been allowed since the end of 1990 (other than transfers from another DPSP). That makes a DPSP a natural companion to a group RRSP, where employees save from their own pay and the employer adds a matching amount into the DPSP.

For employees, it can feel like a quiet bonus that keeps working in the background: a good year at the company shows up later as a bigger nest egg, a cottage weekend in retirement, or a little more breathing room when they finally stop commuting.

How employer contributions work

Only the participating employer contributes, and contributions are made by reference to the employer's profits. In practice, plans often share a portion of the year's profits among members, or use a matching formula tied to what employees save in a companion group RRSP. The plan can cover all employees or a defined group.

The Income Tax Act caps how much can go in for each employee. As of October 2026, the CRA states the annual limit is the lesser of 18% of the employee's compensation from the employer for the year, or a dollar limit equal to half of the money purchase limit. For 2026, the CRA lists the DPSP dollar limit as $17,695 (half of the $35,390 money purchase limit). These figures are indexed and change each year, so check the CRA's current table before setting a formula.

Not everyone can be a member. The CRA says specified shareholders and individuals related to the employer cannot participate in a DPSP. For an owner-managed business, that often means the owners themselves are excluded, which is worth knowing early if you run an owner-operated business and were hoping to use the plan for yourself.

Vesting: when the money belongs to the employee

Vesting is the point at which employer contributions become the employee's to keep, even if they leave. As of October 2026, the CRA's conditions for registration require that all allocations to a beneficiary vest after no more than two years of plan membership. A plan can choose to vest sooner, including immediately.

This is one of the reasons employers like a DPSP: a short vesting period rewards people who stay, while still treating employees fairly. Under the CRA rules, amounts forfeited by someone who leaves before vesting must be paid to the employer or reallocated to other members on or before December 31 of the following year.

Be clear about vesting in your offer letters and onboarding materials so nobody is surprised.

How a DPSP is taxed

The tax treatment is the main draw. As of October 2026, the CRA describes it this way:

• For the employer: contributions made within the plan terms and the Income Tax Act limits can be deducted as a business expense.
• For the employee, while working: employees do not pay tax on the contributions made to a DPSP for their benefit, and contributions plus investment earnings grow tax-free inside the plan.
• For the employee, at payout: amounts are included in income for tax purposes when withdrawn.
• RRSP room: DPSP contributions create a pension adjustment that reduces the employee's RRSP contribution room for the following year.
• Compared with a group RRSP: the CRA generally treats employer contributions to a group RRSP as a taxable benefit to the employee, reported on the T4 (with some exceptions for plans that restrict withdrawals), so payroll handling differs between the two plans. An accountant or advisor can confirm how this applies to your payroll.

When the money comes out

A DPSP is built for the long term, but employees are not locked in forever. As of October 2026, the CRA requires vested amounts to be paid out no later than the earliest of the end of the year the member turns 71, or 90 days after the earliest of the member's death, the day they leave employment, or the termination of the plan.

When that time comes, the CRA rules allow a few paths: a lump sum, equal annual payments over 10 years or less, or an annuity from a licensed annuity provider. As of October 2026, the CRA also lets a lump sum be transferred directly to another DPSP, a registered pension plan, an RRSP (if the member is 71 or younger at the end of the year), a RRIF, a pooled registered pension plan or a specified pension plan, or used to buy an advanced life deferred annuity. Only a direct transfer keeps the tax deferral; a payment taken in cash or by cheque is taxable income in the year it is received.

Some plans also permit withdrawals of vested amounts while the employee is still working. The CRA allows this as an option, but whether it is available depends on how your plan is set up, so ask about it when you compare options.

Pairing a DPSP with a group RRSP

Many Canadian employers run the two plans side by side. Employees contribute to a group RRSP through payroll, and the employer's match goes into the DPSP. The employee gets the flexibility of their own RRSP savings, and the employer gets vesting on its share, plus a contribution the employee does not pay tax on until it is withdrawn.

It is not the only option. A defined contribution pension plan offers more structure, and a group TFSA can suit people who want easier access to their savings. For a side-by-side look, see our guide to group RRSP vs. DPSP, or start with the group retirement overview.

Who a DPSP suits, and how to get started

A DPSP tends to fit employers who want to reward loyalty, link part of compensation to how the business performs, and keep employer dollars from walking out the door in the first year or two. It can work well for growing small and mid-sized businesses that already offer health and dental coverage and want a retirement piece to round out the package.

It may be less useful if most of your team are owners or related to the owners (since they cannot participate), or if profits swing so much that you would rather commit to a fixed match through a different plan. Fees, investment options, administration and the provider's employee education tools also vary, so it pays to compare.

A licensed advisor can walk you through plan design, vesting choices, contribution formulas and providers, and explain how a DPSP would sit next to your existing benefits plan design. GroupBenefitPlans.ca does not sell plans or give advice; we simply help you get matched with a licensed benefits advisor who works with Canadian employers.

Common questions

Can employees contribute to a DPSP?

No. As of October 2026, the CRA's registration conditions do not allow employee contributions to a DPSP (other than transfers from another DPSP). Employees who want to save from their own pay usually do so through a companion group RRSP.

What is the DPSP contribution limit for 2026?

As of October 2026, the CRA sets the limit as the lesser of 18% of the employee's compensation from the employer or half of the money purchase limit. The CRA lists the 2026 DPSP dollar limit as $17,695. The figure is indexed, so check the CRA's current table each year.

How long can a DPSP vesting period be?

Under the CRA's conditions for registration, contributions must vest after no more than two years of plan membership, as of October 2026. Plans can vest sooner, including immediately.

Can a business owner join their own company's DPSP?

Often not. The CRA says specified shareholders and individuals related to the employer cannot participate in a DPSP. An advisor or accountant can confirm whether this applies to you and suggest alternatives.

What happens to my DPSP if I leave my job?

As of October 2026, the CRA requires vested amounts to be paid out within 90 days of leaving. Options include a lump sum (taxable if taken in cash), instalments over 10 years or less, an annuity, or a direct transfer to a registered plan such as an RRSP, RRIF, registered pension plan or another DPSP. Unvested amounts are forfeited under the plan's rules.

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