Q. I’m 36 years old and work in human resources in Hamilton. I’d like to know if an employer’s contribution to an employee profit sharing plan (EPSP) reduces the available RRSP contribution room for the employee?
In my case, the employer’s contribution is made in a non-registered account and reported on a T4PS slip (from my employer) that notes how much I received in employee profit sharing plan allocations during the year. It is taxed in my hands each year. However, it is strange that no income tax is being withheld on my paycheque for this additional income, given that I need to report the income on my tax return and pay tax on it. I do not want another surprise at the end of 2019.
A. An EPSP, or employee profit sharing plan, is established under section 144(1) of the Income Tax Act and set up as a trust. It allows employees to share in the profits of a corporation. The corporation contributes a share of profits (which must be at least 1%) to each employee annually. The employees are beneficiaries of the trust. There are no restrictions on the amount of the contributions, but your employer can establish restrictions on withdrawals.
The amount your employer contributes to you under an EPSP is taxed as income in your hands and is counted with other income in the calculation of your eligible RRSP contribution room for the year, so it is not deducted from your RRSP room but in fact, increases your RRSP room.
There is no requirement for employers to withhold taxes from an EPSP and you should know that an EPSP is not included in the calculation of your CPP or Employment Insurance (EI) entitlements.
Theresa Morley, CAP, CA is a partner with Morley Chartered Accountants in Barrie, Ont. She blogs at MorleyCPA.
MORE FROM ASK A TAX EXPERT:
- 8 year-long tax strategies to build wealth faster
- Renting out the cottage? Don’t miss out on these 11 tax-deductible expenses
- How will Ian’s worldwide income be taxed by the CRA?
- How non-residents are taxed on dividends and other forms of income