Established in 2008, the Registered Disability Savings Program (RDSP) is a specialized, long-term savings program aimed at providing financial assistance to Canadians with disabilities. With federal government contributions through the Canada Disability Savings Bond (CDSB) and Canada Disability Savings Grant (CDSG), this savings program can provide significant financial benefits for the RDSP beneficiary (the individual who will receive the money from this plan in the future), with increased contributions to individuals with low or modest incomes.
The Grizzly Gazette contacted Hendrickson Black LLP, Chartered Professional Accountants, to learn more about this subject. Dean Hendrickson (CPA, CMA, CFP, Partner) and Cathy Baker (Accounting Technician) graciously provided helpful information on this subject and answered our many questions.
In order to be eligible to open an RDSP, the beneficiary must be approved for the Disability Tax Credit (DTC), a non-refundable tax credit designed to assist individuals with disabilities or their caregivers in lowering their potential income tax liabilities. Even if the beneficiary doesn’t directly benefit from the DTC, they must be approved for it before they can open an RDSP. The beneficiary must also be a Canadian resident and have a Social Insurance Number to open an RDSP. An RDSP can be opened for the beneficiary at any time up until December 31 of the year the beneficiary turns 59.
If the beneficiary is under 18, their parents or legal guardian can open and manage an RDSP for them as long as they have been approved for the DTC. If the beneficiary is 18 or over and unable to enter into a contract and/or manage the RDSP, that person’s spouse, common-law partner, or parent can open and manage an RDSP for them. The person managing the RDSP is considered the holder of the account.
The RDSP also provides flexibility for friends and family members to help an individual save through this plan, as anyone with written permission from the account holder can contribute.
Unlike an RRSP, RDSP contributions are not tax deductible. Contributions can be made to an RDSP until December 31 of the year the beneficiary turns 59. While there is no annual contribution limit, there is a maximum lifetime contribution limit of $200,000. Any grants and bonds from the government are not counted toward the lifetime limit.
An RDSP will not impact an individual’s qualification for federal government benefits, including the Goods and Services Tax Credit, Harmonized Sales Tax Credit, Canada Child Benefit, Old Age Security pension, or Employment Insurance. Moreover, provinces and territories may grant full or partial exemptions to RDSPs when assessing eligibility for income assistance payments.
Through opening and contributing to an RDSP, an individual could qualify for up to $90,000 from the federal government. The government contributions come in the form of the CDSG and CDSB:
· Registered Disability Savings Grant: This is a matching grant in that the government will match or exceed contributions made to the plan, depending on the beneficiary’s income, up to a lifetime maximum of $70,000. Individuals with a lower family income will receive more grant money than those with a higher income.
o Individuals with an adjusted family net income (adjusted family net income thresholds are indexed to inflation every year) of $100,392 or less will receive $3 for every $1 they contribute for the first $500. They will then receive $2 for every $1 contributed for an additional $1,000. So, each year, they can receive an additional $3,500 in grant money if they contribute $1500.
o Individuals with a family net income of more than $100,392 will receive $1 for every $1 contributed up to $1,000. So, each year, they can receive an additional $1,000 in grant money if they contribute $1000.
Beneficiaries are eligible for the RDSG until December 31 of the year they turn 49.
· Registered Disability Savings Bond: This is an amount that the government will contribute to lower-income beneficiaries. No contributions are necessary to receive this bond. There is a lifetime limit of $20,000 for the RDSB.
o Individuals with an adjusted family net income of $32,797 or less will receive $1000 each year.
o Individuals with an adjusted family net income of between $32,797 and $50,197 will receive a pro-rated portion of the bond’s $1,000 contribution according to the formula in the Canada Disability Savings Act.
The beneficiary must file their income tax and benefit returns for the past two years to qualify and then every taxation year after. Individuals can apply for the RDSB up until December 31 of the year they turn 49.
RDSP beneficiaries may also be eligible to receive up to 10 years of grants and bonds if they were approved for the DTC at the time but did not receive these benefits. For example, if someone applies for the DTC and receives an approval that is backdated to 10 years or more prior to being approved, they would be eligible for grants and bonds for up to 10 of those years.
Accrued interest in an RDSP is non-taxable until withdrawn from the fund. While funds can be withdrawn at any time, any government contributions that have been in an RDSP for less than 10 years must be repaid. This also applies if the RDSP is closed or if the beneficiary passes away. In these cases, the beneficiary or their estate will receive the funds contributed as well as any interest earned on these contributions.
As you can see, an RDSP can be a powerful tool in providing financial security for Canadians with disabilities. Anyone who is eligible for an RDSP would be well served to open one as soon as they can to maximize the available benefits, particularly if they are under 49 years of age.
For those who would like to learn more about the RDSP, the Canada Revenue Agency provides an excellent brochure with detailed (yet easy-to-read) information on their website (canada.ca/en/revenue-agency/services/forms-publications/publications/rc4460.html).
The Grizzly Gazette thanks Dean Hendrickson and Cathy Baker for the information they have provided for this article. Hendrickson Black LLP has offices in Mayerthorpe, Fox Creek, and Whitecourt. Visit the Hendrickson Black website (hendricksonblack.ca) to learn more about this firm and its services.
By Dean LaBerge, Local Journalism Initiative Reporter
Original Published on Sep 13, 2023 at 12:38