Many companies like to reward some or all employees at the end of the year in the form of a bonus. However these bonuses incur taxes for both the employee and employer, there are other options available that make more financial sense. Specifically a Deferred Profit Sharing Plan in BC is an excellent tool for your company to gain a competitive advantage, while saving money for you and your employees.
A deferred profit sharing plan (DPSP) is an arrangement where an employer contributes a portion of pre-tax profits to some or all employees. This can be used to motivate your top performers, or to share profits with all employees if you so choose. This employer-sponsored profit sharing plan is registered as a trust arrangement with CRA, contributions by the employer are placed in an investment vehicle for the employee. These include:
- Segregated Funds
- Canadian Bond Funds
- Canadian Equity Funds
- Guaranteed Investment Funds
A deferred profit sharing plan in BC (DPSP) has many benefits to the employee, including:
- Low fees – thanks to participating in a group plan the fees are much lower than a personal plan
- Contributions are not taxable to your employees
- Investment returns are also tax-deferred
A DPSP also makes sense for you as the business owner, contributions are directly tied to the profitability of the business and motivates your employees to produce on an annual basis. If there is no profit then you are not required to contribute anything. Here are a few more benefits of a deferred profit sharing plan in BC for you as the business owner:
- Contributions by the business owner are tax deductible.
- A DPSP is simple and easy to set up and manage.
- Helps you stand out when recruiting and retaining employees.
Tying the compensation of your employees with the profits of the business will give your employees a sense of pride and ownership of their position. Knowing that their end-of-the-year bonus is dependent on the overall performance of the company will motivate your employees throughout the year, even if they are not in a sales-related position.
DPSP’s are usually offered in conjunction with a Group RRSP. Click here to learn more about Group RRSP’s and how they can benefit you and your employees.
Contact DENT Benefits today to learn more about the benefits of a deferred profit sharing plan in BC!
The information in this material is derived from various sources. Material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact us for benefit, pension and insurance advice based on your corporate or personal circumstances.