Registered Disability Savings Plans help persons with
disabilities save for the future.
Having a disability or caring for an individual with a
disability can be emotionally and financially draining.
The Canadian government, recognizing the need to
assist in the future care of an individual with a disability,
has created a vehicle for persons with disabilities
and their families to save for the future.
As a Starter
The first step is to open an RDSP in the name of the
beneficiary who must be a Canadian resident under
the age of 60. If the beneficiary is 59, the plan must be
opened before the end of the calendar year in which
the individual turned 59. Other requirements for
enrolment include the need to have a social insurance
number and be eligible for the disability tax credit. The
program allows only one RDSP per beneficiary and
only one beneficiary per RDSP.
Determining the Holder
Once these criteria have been met, the RDSP holder
(administrator) must be determined. The holder can
be an individual or an organization. If the beneficiary
is under the age of majority (the age of majority varies
from province to province), the holder can be a parent,
a legal representative or the provincial trustee.
If the beneficiary is over the age of majority but not
capable of entering into the RDSP arrangement, specified
family members may be able to open the RDSP on
behalf of the disabled beneficiary until the end of 2018.
Choosing the Financial Institution
The RDSP must be administered through a financial
institution participating in the program. Most banks,
as well as a number of credit unions and trust companies,
offer this service.
There is no annual contribution limit.
Unlike other savings plans, there is no annual limit on
contributions to an RDSP. However, the lifetime limit
of contributions is $200,000 and the threshold must
be met by the end of the calendar year in which the
beneficiary attains 59 years of age. The federal government
actively contributes to an RDSP plan based upon
family income levels.
Similar to the Registered Education Savings Plan
(RESP), contributions made to the RDSP are not
eligible for a tax deduction by the contributor(s) but
income and capital gains within the plan grow on a
tax-deferred basis. Once the funds are withdrawn, the
amount is taxed as income in the hands of the beneficiary.
Withdrawals include a blend of taxable and
non-taxable amounts. Money that has been contributed
to the RDSP is not included as taxable income when
it is withdrawn. (The amount of non-taxable income
is calculated according to a formula developed by
the Canada Revenue Agency.) However, investment
income and capital gains, plus any Canada Disability
Savings Grant (CDSG) and Canada Disability Savings
Bond (CDSB) amounts in the plan are included in the
beneficiary’s income for tax purposes when paid out of
Contributions and Withdrawals
It may come as a surprise, but anyone can contribute to
a specific RDSP as long as the holder approves the contribution
amount in writing. Withdrawals must begin
when the beneficiary turns 60. Annual withdrawals,
Lifetime Disability Assistance Payments (LDAPs), continue
until the death of the beneficiary. A beneficiary
may make a one-time withdrawal under the Disability
Assistance Programme (DAP).
The investment criteria mirror those of an RRSP
investment in that investments can be made in mutual
funds, fixed income investments, GICs and Canadian,
U.S. and foreign equities, including new issues.
Canada Disability Savings Grant
The beauty of the RDSP is that the federal government
will assist saving for the beneficiary by providing
matching grants of up to 300% for every dollar placed
into the account by contributors. The maximum grant
provided through the Canada Disability Savings Grant
tops out at $3,500 per annum and has a ceiling of
$70,000 during the matching contribution period that
ends when the beneficiary turns 49 years of age.
As can be expected, grant amounts are based upon the
beneficiary’s family income and inflationary factors
but, if you meet the various criteria to apply for the
grants, the rewards to the RDSP are as follows:
If family income is less than or equal to $87,900:
- For the first $500 you contribute each year to the
RDSP, the federal government will deposit $3 for
every $1 you contribute, up to $1,500 a year.
- For the next $1,000 you contribute each year to the
RDSP, the government will deposit $2 for every $1
you contribute, up to an additional $2,000 a year.
- For the first $1,000 you contribute each year to the
RDSP, the government will deposit $1 for every $1
you contribute, up to $1,000 a year.
If family income is greater than $87,900:
The government also contributes funds to low- and
modest-income Canadians through the Canada
Disability Savings Bond. Those who qualify can receive
up to $1,000 per annum to a maximum of $20,000,
depending upon family income. The government will
make no more contributions after the year in which
the beneficiary turns 49. Note that it is possible to
receive the bond even if contributions are not made to
Withdrawals from RDSPs
Because RDSPs are designed as long-term plans,
withdrawal of funds from either the bond program
or the grant program before the 10th anniversary
triggers repayment requirements. Plan holders should
be aware that the death of the beneficiary or a determination
that the beneficiary may have a shortened
life expectancy will create withdrawal or repayment
Because withdrawals or the death of the beneficiary
will create different repayment or settlement terms,
the beneficiary should understand the financial and
income tax impact of early withdrawal, death or shortened
life expectancy. Your CPA tax advisor, in conjunction
with the financial institution representatives
should be able to offer advice.
Excellent Means of Saving
RDSPs are an excellent vehicle for individuals with
disabilities or those responsible for their future financial
security. As in any program designed to look after
the future welfare of those we care for, the earlier the
program is registered, the more opportunity is available
not only for government contribution but for the
RDSP to grow and provide that financial security.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.