What is an Employee Profit Sharing Plan ?
An Employee Profit Sharing Plan Trust is effective income splitting tax saving strategy for the self employed and commissioned salespeople. It can also save significant employer payroll (CPP & EI) taxes. Employee Profit Sharing Plans are defined in sec 144 of the income tax act and have been around for quite some time. However, recently the EPSP has gained considerable popularity with the new legislation of sec 120.4 regarding what is commonly referred to as the “kiddie tax” on split income from family trusts. What is an EPSP ? The Employee Profit Sharing Plan (EPSP) is an arrangement under which an employer is required to make payments computed by “reference to profits” to an inter-vivos discretionary trust for the benefit of employees of the employer. These payments are deductible to the employer. It is recommended that a subsection 144(1) election be made which provides that the payments are made “out of profits” which will allow greater flexibility to the employer. The beneficiarie
