Registered Disability Savings Plan

What is a Registered Disability Savings Plan (RDSP)?

This is a savings plan that is intended to encourage parents and others to save for the long-term financial security of Canadians with a disability in a tax-deferred environment. The person with a disability must be eligible for the Disability Tax Credit.

What is the Disability Tax Credit?

The disability amount, also known as the Disability Tax Credit, is a non-refundable tax credit that a person with a qualifying impairment can claim to reduce the amount of income tax they have to pay in a year.

What are Canada Disability Savings Grants (CDSGs)?

As a way to encourage long-term savings through an RDSP, the Government of Canada created the Canada Disability Savings Grant (CDSG). Depending on the beneficiary’s family net income and the amount contributed, the Government of Canada will pay matching grants of 100, 200 or 300 per cent. An RDSP can receive a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP by December 31 of the year the beneficiary turns 49 years of age.

What are Canada Disability Savings Bonds (CDSBs)?

To assist low-income Canadians with disabilities, the government will pay up to $1,000 a year based on the beneficiary’s family income. CDSBs are not dependent on individual contributions. The lifetime bond limit is $20,000. A bond can be paid into an RDSP until the year in which the beneficiary turns 49 years of age.

How is a family’s net income determined?

If the beneficiary is a minor, the family net income will be based on the combined net income of the parents or legal guardians. If the beneficiary has attained the age of 18, then the family net income will be based on the income level of the beneficiary (and their spouse or common-law partner).

When are repayments of CDSGs and CDSBs required?

All grants and bonds paid into the plan in the 10 years preceding one of the following events must be repaid to the Government of Canada;

• the RDSP is terminated (voluntary closure);
• the plan is deregistered;
• a disability assistance payment is made from the plan;
• the beneficiary ceases to be eligible for the disability amount; or
• the beneficiary dies.

Who is eligible to be a beneficiary?

Any individual who is a Canadian resident, with a valid Social Insurance Number and is under 60 years of age when contributions are made can become an RDSP beneficiary. The individual must also be eligible to receive the Disability Tax Credit.
The beneficiary may only have one RDSP account.

Who can be a plan holder?

The person with the disability can open an RDSP and be sole owner if they have reached the age of majority and can legally manage their finances. If the beneficiary is a minor or not legally competent, a qualified plan holder, who does not have to be a Canadian citizen, can be —

• A legal parent, guardian, tutor or curator of the beneficiary
• An individual who is legally authorized to act on behalf of the beneficiary
• A public department, agency or organization that is legally authorized to act on behalf of the beneficiary

If the holder is not the beneficiary, the holder does not have to be a resident of Canada, but must have a valid Social Insurance Number (SIN) or Business Number (for public departments, agency or organization).

Can an RDSP be opened by joint plan holders?

Yes. Both legal parents of the beneficiary can be holders under an RDSP. It is also possible for the parents and the beneficiary to be joint holders under the plan.

Are there limits to the contributions I can make?

There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary. However, the overall lifetime limit for a particular beneficiary is $200,000. Contributions are permitted until the end of the year in which the beneficiary turns 59 years of age.

Are contributions tax-deductible?

Contributions to an RDSP are not tax-deductible. Contributions that are withdrawn are not to be included as income for the beneficiary when paid out of an RDSP. However, the Canada Disability Savings Grant, Canada Disability Savings Bond and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of the RDSP.

Who can make contributions to an RDSP?

Anyone can contribute to an RDSP with the written permission of the plan holder.

Who can set up an RDSP?

A legal parent, guardian, tutor, curator or an individual who is legally authorized to act on behalf of the beneficiary is eligible to set up an RDSP. A public department, agency or organization that is legally authorized to act on behalf of the beneficiary may also be named as an account holder. Additionally, a beneficiary who has reached the age of majority and is legally competent can open an RDSP and become a holder of the plan.

How do you establish an RDSP?

To establish an RDSP, a person who is qualified to be a holder of the plan must contact a participating financial institution that offers the RDSP, including TD Waterhouse.

What types of withdrawals can be made from an RDSP?

There are several types of payments that can be made to the beneficiary of an RDSP. Lifetime Disability Assistance Payments (LDAP) are payments that, once they are started, must be paid at least annually until either the plan is terminated or the beneficiary has died.

The second type of payment is a Disability Assistance Payment (DAP). This form of payment can be paid to the beneficiary any time after the RDSP is established. It is important to talk with your advisor about this option, as it may entail repayment of government bonds and grants.

How are withdrawals from an RDSP reported?

The Canada Disability Savings Grant, Canada Disability Savings Bond and investment income earned in the plan are included in the beneficiary’s income for tax purposes when paid out of the RDSP. RDSP issuers report the taxable portion of the payments from the plan in box 28 of a T4A slip and send a copy of the slip to the beneficiary or the beneficiary’s legal representative. The beneficiary includes this amount as income in their tax return for the year in which they receive it.

What happens if the beneficiary no longer has a severe or prolonged impairment in mental or physical functions?

The RDSP must be closed no later than the end of the calendar year following the first full calendar year that the beneficiary is no longer considered mentally or physically impaired. Any funds remaining in the RDSP after any required repayment of bonds and grants will be paid to the beneficiary.