Registered Disability Savings Plans: A New Planning Opportunity

In 2008, the government of Canada established a new tax deferred savings plan for people with disabilities. Registered Disability Savings Plans (RDSPs) will provide opportunities for parents and others to make contributions and for people with disabilities to receive government grants and bonds.

NBACL has a detailed resource booklet for families who are interested in using an RDSP to plan for their child’s future security. Click here to access a copy of the on-line booklet.

Who Is Eligible?

A person can be a “beneficiary” of an RDSP if they are:

A resident of Canada;
Under age 60 when the plan is set up; and
Eligible to receive the federal Disability Tax Credit (DTC) – see the information above under tax credits and deductions.
Who Can Open an RDSP?

If the beneficiary is a minor, a parent or legal guardian can open an RDSP and become the “holder” of the plan. If the beneficiary of the plan is an adult, he or she can open an RDSP and become the holder of the plan. However, if the beneficiary is an adult but not considered ‘competent’ to enter into a contract a legal guardian or another person who is legally authorized to act for the beneficiary can open the RDSP and be the plan’s holder.

Note: An important principle of law is that people who are adults (age 19 or older in New Brunswick) are presumed to be competent until proven otherwise. If you believe that your child is able to sign an agreement to open an RDSP you may have to remind people that he or she is presumed to be competent to do so.

Contributions to RDSPs

Each RDSP will have a $200,000 lifetime contribution limit. With the holder’s written consent, anyone can make a contribution for a beneficiary under an RDSP. There is no annual limit on contributions and contributions can be made until the year in which the beneficiary turns 59. New rules now allow a parent or grandparent to “roll-over” money in an RRSP, RRIF or RSP into an RDSP under certain circumstances when they pass away.

Canada Disability Savings Grant

The Canada Disability Savings Grant will provide a federal contribution to assist families and individuals save for the future. Grants will be greater for families or individuals in the lower and middle-income categories. For plan beneficiaries who are 19 and over, the relevant income will be that of the beneficiary and his/her spouse or common law partner. This means that the income of parents will not be considered when deciding the amount of the grant.

Here are some rules about the Disability Savings Grant:

The Grant can be received for 20 years, until the year the plan beneficiary turns 49;
The maximum federal lifetime Grant contribution will be $70,000;
Grants will not be considered part of the $200,000 contribution limit;
Beneficiaries must wait 10 years after the last Grant is received to avoid repayment rules (see the section below on withdrawals and payments).
Canada Disability Savings Bond

The Canada Disability Savings Bond is an amount of money that the federal government will pay into an RDSP that will not require any contributions. All that will be necessary is to have an RDSP in place and a yearly application to receive the bond. It will provide a federal contribution of $1000 to an RDSP when family or individual yearly income falls under a certain amount that is established each year. The Bond will be phased out gradually for families or individuals whose income is above the yearly limit. As with the Disability Savings Grants, when the plan beneficiary is 19 or older, it is his or her yearly income and not the parent’s income that will be considered.

Here are some rules about the Disability Savings Bond:

The Bond will have a $20,000 lifetime limit and can be received for 20 years until the year the beneficiary turns 49;
Bonds will not be considered part of the $200,000 contribution limit;
Beneficiaries must wait 10 years after the last Bond is received to avoid repayment rules.
Withdrawals/Payments from an RDSP

There are two types of payments that can be made from an RDSP:

Disability Assistance Payments can be any amount paid from the plan at any time (including a lump sum payment) but can only happen if contributions to the plan (made by families and others) are greater than the amounts contributed by the federal government (through grants and bonds).
Lifetime Disability Assistance Payments can begin at any time but once they are started they have to continue. These payments must start in the year the plan beneficiary turns 60 if they have not already begun.
In addition, the following rules also apply to payments from RDSPs:

Each dollar withdrawn will be considered to be comprised of contribution, Grant or Bond, and investment income. The beneficiary will have to pay income tax only on the portion that is Grant, Bond or investment income
Payments from an RDSP will not affect the beneficiary’s entitlement to other federal benefits such as the GST/HST credit, Canada Child Tax Credit, Old Age Security and Employment Insurance Benefits
Repayment Rules

The RDSP will be subject to “repayment” rules. All Bonds and Grants paid to the plan in the 10 years preceding one of the following events must be repaid to the Government of Canada:

A payment is made from the plan to or for the benefit of the beneficiary
The end of the beneficiary’s eligibility for the Disability Tax Credit
The death of the beneficiary
Impact on Provincial Programs

The government of New Brunswick has exempted the RDSP as an asset for adults with disabilities who receive provincial income support benefits. This means that the RDSP can grow in value over time without affecting the amount of the monthly cheque a person can receive. Once payments are made from the RDSP, the person receiving income support benefits will be able to withdraw $800 per month from the plan without having his or her cheque affected. Lump sum payments will also be exempt if they are approved by the government prior to the withdrawal. If more than $800 per month is withdrawn then the person’s cheque will be reduced dollar for dollar for any amount above $800.

Other Information

To find out what an RDSP may be worth in the future, check out the RDSP calculator.

For more information about RDSPs, check out the following links:

Canada Revenue Agency –
Human Resources and Skills Development Canada –

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