Registered Disability Savings Plan
A Registered Disability Savings Plan (RDSP), like a Registered Education Savings Plan (RESP), uses after-tax dollars to build up savings in a tax-deferred plan; the beneficiary, who must also be eligible for the disability tax credit to qualify, receives no upfront tax deduction. Rather, he or she draws down the savings, paying tax at a potentially lower income bracket. RDSPs were introduced in the 2007 federal budget for the 2008 tax year (with an extension to March 2, 2009 to receive federal support grants and bonds). Budget 2012 contained further enhancements for RDSPs.
A beneficiary can only have one RDSP at any given time, although this RDSP can have several plan holders throughout its existence, and it can have more than one plan holder at any given time.
Each RDSP has one beneficiary. The planholder can change, whether it is a parent, a legal guardian or a public agency.
As registered plans, they must be maintained by a trust company licensed to conduct business in Canada. The trust company must also have entered into an agreement with Human Resources and Skills Development Canada (HRSDC) to administer the disability savings grants and bonds.
Once you open an RDSP, you may apply for the Canada Disability Savings Grant and Canada Disability Savings Bond.
There is no impact on federal benefits, such as the Canada Child Tax Benefit, the Goods and Services Tax Credit, Old Age Security, and Employment Insurance.
Contributions can be made by the beneficiary, family and others who are authorized by the planholder. The contributions are not tax-deductible, but are tax-exempt as long as they remain in the plan. They become taxable when withdrawn as a disability assistance payment. There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary in a given year. 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.
The deadline for making contributions to an RDSP, and applying for the Canada Disability Savings Grant and Canada Disability Savings Bond, is December 31 of each year.
Since January 2011, you are allowed to carry forward unused grant and bond entitlements to future years. The carry forward period can only start after 2007 and lasts for 10 years. The terms and conditions of the grant and bond entitlement programs also include provisions for their repayment under certain conditions
As of July 2011, the proceeds from a deceased parent’s or grandparent’s Registered Retirement Savings Plan, Registered Retirement Income Fund and Registered Pension Plan can be rolled over into the RDSP of a financially dependent child or grandchild with a disability.
Canada Disability Savings Grant
Contributions can be supplemented by the Canada Disability Savings Grant. HRSDC specifies: "Depending on the beneficiary’s family income and contribution level, the Government may grant up to $3 for every $1 in contributions received by an RDSP in a year, to a maximum of $3,500. The lifetime grant limit is $70,000. A Canada Disability Savings Grant can be paid into an RDSP on a contribution made to the beneficiary’s RDSP by December 31 of the year the beneficiary turns 49 years old." The beneficiary family income thresholds are indexed each year to inflation. The family income threshold is $85,414 (for 2012). Below that income, there is a 3-to-1 dollar grant on the first $500 contribution, and a 2-to-1 grant on the next $1000 (but nothing after that). Above that income threshold, there is a simple dollar-matching grant on the first $1000 contribution.
The beneficiary's family income is calculated as follows:
- From birth to December 31 of the year the beneficiary turns 18, the beneficiary's family income is based on the income information used to determine the Canada child tax benefit (CCTB) for that beneficiary.
- Beginning the year the beneficiary turns 19 until the RDSP is closed, the beneficiary's family income is based on his or her income plus his or her spouse's, or common-law partner's income.
Canada Disability Savings Bond
Lower-income families may qualify for payments from the Canada Disability Savings Bond program (also administered by HRSDC) without having to make a contribution to an RDSP. According to HRSDC, the "Canada Disability Savings Bond is paid by the Government of Canada directly into a registered disability savings plan. Depending on the beneficiary’s family income, the Government of Canada may contribute up to $1,000 each year. The lifetime bond limit is $20,000. A Canada Disability Savings Bond can be paid into an RDSP until the year in which the beneficiary turns 49 years old." The full bond is paid up to a family income of $24,863 and phased out at $42,707 (for 2012). As with the Canada Disability Savings Grant, this amount is indexed indexed to inflation each year.
Some frequently asked questions are:
- Who can set up an RDSP?
- Payments into the RDSP
- Payments out of the RDSP
- Taxable amount of disability assistance payments
- Termination of the RDSP
The calculator will help Canadian families project the estimated future value of an RDSP, and will help determine how it can enhance the quality of life for a family member with a disability. By answering a few simple questions, the calculator will determine the amount of Grant and Bond a person is eligible for, and the approximate value of future payments.
Budget 2008 announced that the program would be reviewed three years after plans became operational. In October 2011, the federal government announced a review of Ensuring the Effectiveness of Registered Disability Savings Plans with the objective:
- This consultation paper outlines the major elements of the RDSP program and seeks the views of Canadians on important elements of the program, including issues related to establishing plans, accessing plan savings, plan termination, and the administration of the RDSP program. The Government encourages interested Canadians to submit comments on these and other relevant issues.
The consultation period ended December 16, 2011.
Budget 2012  announced that based on the feedback received during the review, Economic Action Plan 2012 proposes a number of measures to improve the RDSP. These measures will:
- Provide greater access to RDSP savings for small withdrawals by replacing the requirement to repay any CDSGs and CDSBs paid into an RDSP within the 10 years preceding a withdrawal from the plan with a requirement to repay CDSGs and CDSBs at a fixed ratio to the amount withdrawn.
- Provide greater flexibility to make withdrawals from certain RDSPs by increasing the annual maximum withdrawal limit that applies to these RDSPs, and ensure that RDSP assets are used to support a beneficiary during their lifetime by requiring a minimum amount to be withdrawn from all RDSPs beginning the year a beneficiary attains 60 years of age.
- Provide greater flexibility for parents who save in Registered Education Savings Plans (RESPs) for children with disabilities by allowing investment income earned in an RESP to be transferred on a tax-free basis to an RESP beneficiary’s RDSP.
- Provide greater continuity for long-term saving by RDSP beneficiaries who cease to qualify for the Disability Tax Credit in certain circumstances by extending the period that their plans may remain open.
- Improve the administration of the RDSP for financial institutions and beneficiaries by amending certain RDSP administrative rules.
More detailed information is available in Federal Government Releases Q&A Sheet on RDSP Changes
Other disability savings options
- Canada Revenue Agency, About Registered Disability Savings Plans (RDSPs), viewed August 16, 2012.
- Human Resources and Skills Development Canada, RDSP Overview, viewed August 16, 2012.
- Canada Revenue Agency, RDSP limits and transfers, viewed August 16, 2012.
- Canada Revenue Agency, Canada disability savings grant and Canada disability savings bond, viewed August 16, 2012.
- Human Resources and Skills Development Canada, Registered Disability Savings Plan (RDSP), viewed August 16, 2012.
- Human Resources and Skills Development Canada,"Canada Disability Savings Grant," 2008-10-29.
- Human Resources and Skills Development Canada,"Canada Disability Savings Bond,", viewed August 16, 2012.
- TaxTips.ca,Registered Disability Savings Plans (RDSPs) Viewed October 20, 2009
- PLAN RDSP, RDSP Calculator Version 1.0, Viewed October 30, 2009.
- Budget 2012 - Chapter 3.4: Supporting Families and Communities, viewed August 16, 2012.
- Registered Disability Savings Plan Blog
- Human Resources and Skills Development Canada, Financial Organizations that offer RDSPs, grants and bonds.
- Provincial/territorial treatment of RDSPs
- Tax Topics and Resources for Persons With Disabilities
- Service Canada, Registered Disability Savings Plan
- Registered Disability Savings Plan | RDSP Resource Centre
- Gail Bebee, Positive Changes For Registered Disability Savings Plans Proposed In Federal Budget, Canadian MoneySaver, September 2012 issue