Established under section 144(1) of the Income Tax Act, the EPSP is a special purpose trust that allows the beneficiaries of the plan to share in the profits of a company. The allocations to an EPSP are taxable in the hands of an employee and a deductible expense for an employer.

Advantages of the EPSP:

• They do not attract either Employer/Employee Canada Pension Plan (CPP) or EI contributions.
• Allows for more control over retirement assets.
• They are treated as pension and /or RRSP eligible earnings.
• Source deductions and withholdings are not required by the EPSP Trustee or Employer.
• Allow for income splitting opportunities.
• All amounts paid from an EPSP to an employee are not subject to a reasonableness test, unlike salaries.
• The “kiddie tax” rules should not apply to income received by minor children from an allocation from an EPSP, if they are bona fide employees of the business.
• Contributions to the EPSP can be made up to 120 days after a corporate year end.

Obviously, EPSPs require a specialty in areas such as accounting, legal, employment and tax law and employee benefit plan construction. Many employers and their accounting professionals will need to seek educational services to aid them in the EPSP setup, maintenance and wind-up stages. Therefore, it is worth the time and money to hire an employee benefit consultant to assist in the design, implementation, maintenance and wind-up of an EPSP solution. IRONSHIELD Financial Planning can assist you with the entire process.