From: Canada Revenue Agency

Payments

Beneficiaries of a deferred profit sharing plan (DPSP) can take a lump-sum payment out of the plan to transfer to another registered plan for their benefit, or they can receive payments directly from the DPSP or from a licensed annuity provider.

A transfer of a lump-sum amount to another DPSP, a registered pension plan, a registered retirement savings plan, a registered retirement income fund, pooled registered pension plan, or a specified pension plan can be completed using Form T2151, Direct Transfer of a Single Amount Under Subsection 147(19) or Section 147.3. The individual cannot claim a tax deduction for amounts transferred to these plans, and is not required to include the amount in their income tax and benefit return.

Lump-sum amounts that are not transferred to other registered plans, as well as equal annual payments from the plan or annuity payments received from a licensed annuity provider must be brought into income for tax purposes. The following reporting and filing requirements relate to these types of payments.

Reporting

Unless a lump-sum amount is transferred to another registered plan as noted above, the amount received is taxable to the recipient and is reported on a T4A, Statement of Pension, Retirement, Annuity, and Other Income. The employer must deduct a withholding rate percentage of the lump-sum to submit for taxes on the beneficiary’s behalf. The percentage for withholding will change depending on the total amount of the lump-sum taken for the year, and where the beneficiary lives. On the T4A slip the lump-sum amount will show in Box 18, and the deduction amount will show in Box 22.

Amounts contributed to a DPSP for specified shareholders and related persons of the employer or a related employer is a violation of paragraph 147(2)(k.2) of the Income Tax Act and the contributions must be included in their income in the year the contribution is made. These amounts should be reported in Box 18.

For annuity and installment payments made from a DPSP, see code 115 in the Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary.

Filing

The employer must file the T4A Slip and Summary with the Canada Revenue Agency in respect of taxable amounts paid from a DPSP. The employer must also provide copies to the beneficiary to file with their income tax and benefit return. For more information on how to complete the T4A in respect of lump-sum payments, installments and annuity payments, see T4A – Information for payers.

Related links

• Form T2151, Direct Transfer of a Single Amount Under Subsection 147(19) or Section 147.3
• RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary