Transfers to or from a deferred profit sharing plan

From: Canada Revenue Agency

Amounts can be transferred to or from a deferred profit sharing plan (DPSP) if the transfer is permitted under the Income Tax Act and the plan terms. The only direct transfers that can be made to a DPSP are from another DPSP.

Direct transfers from a DPSP

Subsection 147(19) of the Act allows for a direct tax-free transfer of a lump-sum amount from a DPSP. Direct transfers can be made on behalf of an employee participating in an employer’s DPSP or a spouse or common-law partner of an employee where a lump-sum amount is paid because of the death of the employee or a settlement because of a breakdown in the marriage or common-law partnership. The list of registered plans that a lump-sum amount can be transferred to are:

• a registered pension plan where the individual is a member
• a registered retirement savings plan under which the individual is the annuitant
• a specified pension plan under which the individual is a member
• a pooled registered pension plan under which the individual is a member
• a registered retirement income fund under which the individual is the annuitant
• another DPSP under which the individual is a beneficiary provided that there are at least 5 other beneficiaries in the plan

Indirect transfers from a DPSP

An amount can be transferred from a DPSP to another registered plan, if the amount is included in the income of the beneficiary that is requesting the transfer. This amount would then be offset by the deduction which is available under paragraph 60(j) of the Act.

A deduction under paragraph 60(j) applies if:

• it is a single payment from the DPSP trustee that includes shares of the capital stock of a corporation that was an employer who contributed to the DPSP, or shares of a corporation with which the employer does not deal at arm's length, and
• the beneficiary has elected to have the provisions of subsection 147(10.1) of the Act apply by filing a completed Form T2078, Election Under Subsection 147(10.1) in Respect of a Single Payment Received From a Deferred Profit Sharing Plan, in the prescribed manner

This deduction applies if a beneficiary receives a DPSP payment while resident in Canada when the beneficiary withdraws from the plan, retires from employment, or when an employee or former employee dies.

Related links

• Income Tax Act, Section 147
• Form T2151, Direct Transfer of a Single Amount Under Subsection 147(19) or Section 147.3
• IT528, Transfers of Funds Between Registered Plans-Archived
• T4040, RRSPs and other Registered Plans for Retirement