T4PS Summary – Employees Profit Sharing Plan Allocations and Payments

An EPSP is an arrangement that allows an employer to share profits with all or a designated group of employees. Under an EPSP, amounts are paid to a trustee to be held and invested for the benefit of the employees who are beneficiaries of the plan.

Each year, the following amounts must be allocated either contingently or absolutely among the beneficiaries:

• The contributions received by the trust from the employer or a corporation with whom the employer does not deal at arm's length
• The profits from the property of the trust (computed without reference to capital gains or capital losses)
• All capital gains and losses of the trust
• The amount forfeited by the member of the EPSP who ceased to be a beneficiary under the plan for the year.

There are no CPP contributions, EI premiums or income tax deductions withheld from amounts allocated or paid to the beneficiaries.

How the employer can apply to have the arrangement qualify as an EPSP

The employer must make an election with the CRA to have an arrangement under which payments are stipulated to be made “out of profits” to qualify as an EPSP by sending all of the following information:

• A letter from the employer stating that the employer elects to have the arrangement qualify as an EPSP
• If the employer is a corporation, and the directors are:
  • Legally entitled to administer the corporation's affairs, a certified copy of the resolution of the directors authorizing the election to be made
  • Not legally entitled to administer the corporation's affairs, a certified copy of the authorization to have the election made by the persons legally entitled to administer the corporation's affairs
• A copy of the agreement and any supplementary agreement setting out the plan.

Where to send the election

Send the election by registered mail to the Employer Programs Operations Section of your tax centre.