What is an RDSP?
The Registered Disability Savings Plan is an effective savings plan for Canadians with disabilities to save for the future. The RDSP is designed for long term savings helping Canadians with disabilities have financial security.
Countless people with disabilities and parents of children with disabilities could potentially miss out on up to $90,000 in federal government savings grants and savings bonds, plus the opportunity to earn more income from decades of investment growth.
Hancock Financial Solutions provides a no-charge review for existing Registered Disability Savings Plans (RDSP) or we can guide you through the procedure of setting up the application and Applying for a RDSP.
The Disability Tax Credit (DTC) and the Registered Disability Savings Plan (RDSP)
The DTC is a doorway to a number of other disability supports including the Registered Disability Savings Plan (RDSP), an initiative by the Federal government of Canada. People must be eligible for the DTC to open and benefit from an RDSP.
The RDSP is a Canada-only registered matched savings plan specific for people with disabilities.
Here are some basics about the RDSP:
- For every $1 put in an RDSP, the federal government could match with up to $3 depending on family income.
- For people living on low-incomes, the government will put in up to $1000/ year and up to $20,000 in your lifetime. This money will come into the RDSP automatically just by having the account open.
- Anyone can contribute to an RDSP—family members, friends, individuals themselves.
- The money can be invested in any way an individual or family member chooses.
- People can have an RDSP and still get almost all provincial and all federal disability benefits. The RDSP is considered exempt income for these programs even when the person starts to withdraw funds from the account.
What does it mean to people with disabilities and their families?
- Financial security,
- the ability to participate in more daily social activities such as going out for dinner, taking a vacation or taking a course,
- the possibility of purchasing a home later in life,
- peace of mind for themselves and their loved ones,
- a significant reduction of poverty.
You have decided to open a Registered Disability Savings Plan (RDSP)
This RDSP guide is to help you complete each of the steps needed with the Registration Process:
Become eligible for an RDSP
Open an RDSP
Manage your mone
This guide is for two groups of people:
Individuals with disabilities who are opening an RDSP for themselves, and;
Relatives or friends who are opening an RDSP for their relative or friend with a disability.
The RDSP is a savings tool that assists people with disabilities to save money for their future. Once an RDSP is opened, for every $1 of personal contributions you add, this could be matched by the federal government up to $3, depending on your income level. For example, if $1500 is deposited in an RDSP, the government could match with up to $3500! If you are living on low-income the government will also put an additional $1000 into the account each year for up to 20 years. This is automatic and you don’t have to deposit any money into the RDSP to receive this money. By helping yourself, your family member, or friend to open and manage their RDSP, you are helping them plan for a brighter financial future.
This is a Step by Step Guide to the process of opening a Registered Disability Savings Plan. As you complete each step, check the tick box and move to the next step.
Some steps you may have already done—that’s great—just tick them off and move on.
Step 1 - SOCIAL INSURANCE NUMBER
The Social Insurance Number (SIN) is a number that you need if you want to work or receive other benefits. You need a permanent or temporary SIN to open an RDSP. If you forget your SIN or lose your SIN card, you can find the number on your income tax return or contact a nearby Service Canada office to get your number or replace your SIN card.
Every resident of Canada can get a SIN. If you are over the age of 12, you can apply for one yourself. Parents and legal guardians can apply on behalf of anyone under the age of majority (either 18 or 19 years old). A legal guardian or representative can apply on behalf of an adult. It is easy to get your SIN, and it is free. You can apply online, in-person or by mail.
To apply, you will need your birth certificate, Certificate of Canadian citizenship, Certificate of Indian Status or permanent residence card.
Depending on how you apply and your age, you may need to submit other documents to support your application, known as ‘secondary documents’. Typically this could be a document issued by a government (federal or provincial) and shows your legal name (surname and given name) as well as your date of birth. An example would be your passport or driving licence.
Step 2 - DISABILITY TAX CREDIT
Tax Credits are credits the government gives you. You claim them when you file your income taxes. When you have a credit, it reduces the amount of tax you have to pay.
The Disability Tax Credit (DTC) reduces your taxes in recognition of your disability. You get the credit when you file your taxes. People with severe and prolonged disabilities qualify. The DTC is non-refundable—this means you will pay less tax but you do not get any money back. You must apply for the DTC before you can claim it on your taxes.
The Disability Tax Credit is the doorway to the RDSP. There are also other benefits to having the DTC including:
The DTC offers a reduction in taxes that you or an eligible caregiver pay.
If you are eligible for the DTC for previous years (up to 10 previous years) then you can apply the credit to you or your caregiver’s past tax returns and get money back.
The DTC allows you to apply for the Canada Workers Benefit which offers tax relief for lower-income workers.
The DTC also allows legal guardians of a child with a disability to claim the Child Disability Benefit which is a taxfree monthly payment.
Applying for the DTC may take a few months and a few attempts for you to be approved. Start now and get the ball rolling! Some people with disabilities receive the DTC easily— other people have a harder time. At Hancock Financial Solutions we are able to help you with this process.
How do you apply?
You or your support person completes Part A of the DTC Form, also called the T2201.
Depending on your disability, take the form to one of these people: your family practitioner, nurse practitioner, optometrist, audiologist, occupational therapist, physiotherapist, psychologist or speech/ language pathologist. Ask them to fill out Part B of the form. You may need to pay for this— when you call to make an appointment, let the receptionist know what it is for and ask how much it will cost.
Get the signed form back from your practitioner and we will arrange to send it to the CRA with a narrative to support the application that we write with you. If you don’t agree with what the practitioner has written, or feel they have missed information, you can then choose to take it to another practitioner.
Remember to keep a copy of your completed form for your records, we will keep a copy on file for you in our office.. You should also request that the medical practitioner’s office keep a copy as well. This will help you or your medical practitioner review and reference the material if a follow-up questionnaire from the CRA is requested or there are issues with your application.
Your practitioner has an important job to do—they must fill the form out right for you to get the DTC. If they don’t include enough information, or miss anything, this could be a problem. When you see your practitioner, make sure your practitioner understands what you have challenges with. Tell them as much as possible about your disability and how it affects your day-to-day life. It may be helpful to keep a journal of how your condition is affecting the basic activities of daily living, and to share this information with your practitioner.
Also, tell your practitioner how important the DTC is for your future. Many practitioners will not know about the benefits of having the DTC and the difference it will make to your life. If they know more about it, they may take extra care in filling out your form. For example, you may want to tell them about the Registered Disability Savings Plan (RDSP).
You wait. It usually takes a few months to hear back from the government. Over the December holiday period, this wait may be longer.
Once the CRA has made a decision, they will send a ‘Notice of Determination’. If your DTC application is approved, the notice of determination will show which year(s) you are eligible for the DTC. Sometimes this can be ‘indefinite status’ which means you can apply for the rest of your life. When your eligibility is about to expire, the CRA will notify you one year in advance as well as in the year it expires on your tax return. You will need to read through all documents each year to make sure you don’t miss the notice. You will need to submit a new DTC form to be eligible for these future years.
What if I am rejected?
You will get a letter explaining why you were turned down. You can either send the form in again with another practitioner, or make a formal objection. If you would like to launch a formal objection, look at the CRA website on how to do this, or ask us for assistance.
Step 3 - FILE YOUR INCOME TAX RETURN
In order for the government to know how much RDSP grant and bond you will receive, you need to file your taxes every year. If you have never filed taxes or have missed a few years, you will need to file taxes for the past two years.
You must file taxes every year in order to continue to receive the correct amount of grants and bonds in your RDSP.
Step 4 - RDSP Registration
Contact Hancock Financial Solutions to open your RDSP.
Step 5 - CHOOSE YOUR HOLDER
A Holder is the person who manages the plan, makes decisions around investments and payment options. You are probably the Holder if you are an adult and you have ‘contractual competence’. You can still have someone to assist you in opening your RDSP and making financial decisions.
Contractual competence is being able to understand what a legal or financial document or account means, how it will impact you (both pros and cons), and what the consequences are for not following the rules associated with the agreement.
For a child, the Holder must be a parent or guardian. You can also have joint holders as in the case where two legal parents wish to manage the plan. Parents can remain Holders of the plan, even when the person becomes an adult, but can also pass the holdership over or become joint Holders.
When the beneficiary of an RDSP reaches the age of majority in the province/ territory where they reside, one of the following two situations will apply:
If the RDSP holder is the legal parent, the beneficiary may be added to the RDSP as a joint holder if they so wish.. In all other cases, the beneficiary is the only one who can be a holder of the plan once they have reached the age of majority and is legally able to enter into a contract.
If the RDSP holder is someone other than the legal parent, that person or body must be removed as the holder of the plan. In such a case, the beneficiary must be added as the holder. If the beneficiary is not contractually competent, then the legal representative of the beneficiary, such as a court appointed guardian, can be the holder.
An adult that does not have contractual competence may have an adult guardian or representative through a representation agreement (in BC only) to open and manage the RDSP. Adult guardians have different legal names in each province but include adult guardian, power of attorney, tutor, trustee, curator and committee.
Step 6 - OPEN YOUR RDSP
Here you are! You have been approved for the DTC, you have contacted Hancock Financial Solutions and you are ready to open your RDSP. When you meet with us, you will need to take:
Your social insurance number
One piece of valid picture ID
You do not need to bring a copy of your DTC or income tax returns—we and the government will take care of this.
Step 7 - INVESTING YOUR MONEY
What kind of investor are you?
Now that you have opened your RDSP and money is being put in the account, you will need to decide how to invest your money. When you invest, you hope to get back more money than you put in. In other words, you want a good return on your investment.
Investing is about choices. The choices you make reveal who you are as an investor. This is called your investor profile. Your investor profile may change over time, so it is good to revisit your investment choice from time to time.
Risk is the chance you take that your investments will not meet your expectations, and may even lose money.
1. How much risk is right for me?
To discover your profile, ask yourself the following questions:
How much risk is right for me?
How much am I hoping to make by investing?
How long do I plan to invest for?
We will use these answers to help find the right investment for you.
2. How much am I hoping to make by investing? (your investment return)
Low risk investments are steady but provide a lower return
In most cases, to make more money, you have to take more risk
It all depends on how much you need to meet your future vision
3. How long do I plan to invest for?
Time horizon is the number of years that you plan to invest. For example, saving to buy a house is a shorter-term goal. Saving for retirement is a long-term goal. Higher risk investments are often better for a longer time horizon.
Step 8 - UPDATE YOUR WILL
Any person who has an RDSP, should have a Will. When you pass away, your Will will say what will happen to the remaining money. If you don’t have a Will, the government will pass out the money according to provincial law.
If you are the holder for a child’s RDSP and you pass away, the next person who is appointed to act as the beneficiary’s legal guardian can continue to manage the account. However, that guardian will need to notify the financial institution of a change in holder.
Frequently Asked Questions
1. What is a Registered Disability Savings Plan (RDSP)?
An RDSP is a registered savings plan established by the Federal Government to assist families in saving for the long-term financial security of individuals with severe disabilities. Government matching and extra funding for low-income beneficiaries form part of the Plan. Contributions to the plan are not tax deductible, but the earnings grow tax free while held in the plan.
2. Who is eligible for an RDSP?
To qualify to be an RDSP beneficiary, you must:
• Be eligible for the Disability Tax Credit
• Be a resident of Canada
• Be less than 60 years of age
• Have a valid Social Insurance Number
3. How does an individual qualify for the Disability Tax Credit (DTC)?
A person is DTC-eligible in a tax year if they have a severe and prolonged physical or mental impairment, and they or another person is entitled to a credit under section 118.3 of the Income Tax Act. To be entitled to the credit, Form T2201, Disability Tax Credit Certificate, must have been completed by a qualified practitioner and submitted to the Canada Revenue Agency for approval. For more information on the disability tax credit, see Persons with disabilities on the CRA website (www.cra-gc.ca)
If someone is interested in opening an RDSP but hasn’t already applied for the DTC, they must be approved for the DTC prior to opening an RDSP. If an RDSP account is opened, grant and bond monies will not be payable until the DTC approval has been verified.
4. Can a beneficiary have more than one RDSP?
No, a beneficiary can only have one RDSP at any one time. However an RDSP can be transferred from one institution to another. The new RDSP will be “pending” for Grants and Bonds until the transferring institution has closed the original RDSP.
5. Can more than one RDSP beneficiary be named?
No, there can only be one beneficiary under the plan, and the beneficiary must remain the same throughout the lifetime of the plan.
6. Who can open an RDSP?
The following can open an RDSP and become the holder of the plan:
• A beneficiary who has reached the age of majority
• A legal parent, guardian, tutor, curator of the beneficiary, or an individual who is legally authorized to act
for the beneficiary
• A public department, agency, or institution that is legally authorized to act for the beneficiary.
• Qualified Family Member, this includes a parent, spouse or common-law partner. This provision is available
7. Is there an age limit for an RDSP?
Yes. RDSP accounts can be opened for persons with disability from age newborn to a maximum of age 59 (Note: government matching does not apply for individuals over age 49, since the grants and bonds must be held in the account for a minimum of 10 years or be subject to repayment to the Government).
8. Can an RDSP be held jointly?
Yes. The legal parents of the beneficiary may be joint holders of an RDSP, a qualified family member, this includes a parent, spouse or common-law partner may be a joint holder.
9. Can the holder be a parent even if the beneficiary is over the age of majority?
Yes. If the parent has been legally appointed as a guardian of the beneficiary or is otherwise authorized to act for the beneficiary, that parent can be the holder whether the child is a minor or over the age of majority.
The Minister of Finance made a change to the existing rule in Budget 2012. Under the new rules a “qualifying family member” is allowed to establish an RDSP for a beneficiary who is not contractually competent. The definition of a qualifying family member is only a spouse, common-law partner or a parent. This is a temporary change and applies from July 2012 to the end of 2018. Even though this is temporary it is important to note that the account holder is able to remain as account holder beyond 2018. It is simply that any new RDSPs cannot be opened this way after 2018.
10. Can one parent be the holder and not both?
Generally speaking, yes. One parent can be the holder, both can be joint holders or one or both can be joint holder with the beneficiary. In the case of a minor beneficiary, if the account holder is not the recipient of the Canada Child Benefit (CCB) then the recipient of the CCB must be identified in the primary caregiver section of the application.
11. Can a holder be anyone else?
Yes. A guardian or other representative who is legally authorized to act on behalf of the beneficiary may be holder or joint holder of the plan.
12. How can a Mackenzie RDSP be opened?
As with any other type of plan offered by Mackenzie, an interested client can open a plan through their financial advisor.
13. What is a specified year?
The year a doctor attests in writing that the beneficiary is not likely to survive more than five years. In the case of a specified year, a beneficiary can receive all the funds in his or her RDSP in a lump sum or the funds may be spread over the next five years.
Withdrawals from the RDSP will trigger the repayment of the Assistance Holdback Amount (AHA).
14. What is a specified disability savings plan (SDSP)?
This is provided to beneficiaries who have a shortened life expectancy – 5 years or less. A doctor must certify in writing that the beneficiary has 5 years or less to live and then they make and election to turn the plan into a specified plan. Withdrawals from the SDSP will not trigger the repayment of the AHA as long as the total of the taxable amount of all withdrawals made in the year do not exceed $10,000. If an election is made no new contributions are permitted and no new grants and bonds can be paid into the account and they are not entitled to new carry forward of grants and bonds.
Contributions & Investment
15. Who can contribute to a RDSP?
Anyone can make a contribution to a RDSP for a beneficiary, with the holder’s written consent.
16. How much can be contributed to an RDSP?
A maximum amount of $200,000 per beneficiary can be contributed during the lifetime of the RDSP. There is no annual contribution limit.
17. If a contribution is being made by a person other than the holder, will Mackenzie allow PACs
and third party cheques?
If the holder signs a consent form to allow someone other than the holder to make contributions to the RDSP, Mackenzie will allow PACs and third party cheques. The holder must be aware of the third party contributions in order to ensure that the maximum $200,000 limit is not exceeded, and so that the holder of the plan is able to schedule contributions to maximize government grants.
18. Are contributions tax-deductible?
Contributions are not tax-deductible; however, the earnings grow tax free while held in the plan. There is however, legislation that will allow for a tax-deferred rollover of RRSP/RRIF or Registered Pension Plan monies to a disabled dependent child or grandchild of a supporting annuitant. As of January 1, 2014 the tax-deferred rollover of the AIP from an RESP is permitted as long as certain criteria are met, this is discussed in more detail in #22.
19. How long can contributions be made to an RDSP?
Contributions can be made to a plan until the earliest of:
• the beneficiary’s death
• December 31st of the year in which the beneficiary reaches 59 years of age
• the time when contributions to the plan (and any prior RDSP of the beneficiary) total $200,000
• the time when the beneficiary no longer qualifies for the DTC; and
• the time when the beneficiary is no longer resident in Canada for tax purposes
20. Can a deceased parent or grandparent transfer RRSP, RRIF or RPP to an RDSP?
Yes, as of July 1, 2011 tax-deferred transfers from RRSPs, RRIFs or RPPs are permitted to an RDSP as long as the beneficiary of the RDSP was financially dependent on the parent or grandparent. The amount transferred cannot exceed the beneficiary’s contribution limit. Contributions under these rules will be taxable to the RDSP beneficiary when withdrawn from the plan. In addition, contributions in these circumstances will not attract any Government grant or bond monies, so can be used as an immediate income stream for the RDSP beneficiary as long as grant/bond has not been received in the 10 years preceding the withdrawal.
21. What kind of investments can an RDSP hold?
Qualified investments for RDSPs are generally the same as those for Registered Retirement Savings Plans (RRSPs)
and Registered Education Savings Plans (RESPs) and include cash, stocks, bonds, GICs, mutual funds and a variety
of other investments.
22. If a beneficiary had an RESP account opened and then later became disabled, are they able to transfer the RESP assets in-kind or in cash from the RESP to the RDSP and incur no tax?
Effective January 1, 2014, if a beneficiary has an RESP and becomes disabled, the accumulated income from the RESP may be transferred on a tax-deferral into the beneficiary’s RDSP. It is important to note that the rollover is not eligible for the Canada Disability Savings Grant. The contributions in the RESP would be returned to the subscriber tax-free and can be invested in the RDSP. If this happens these contributions would be eligible for Government grants up to the maximum annual grant amount (currently $10,500). When the RESP is collapsed, any grants in the account will need to be paid back to the Government. The AIP rollover is not subject to regular income tax or to the 20% penalty that would normally apply when an AIP is paid to an RESP subscriber. The rollover from the RESP will reduce the beneficiary’s RDSP contribution room and will be included as income
23. Can investments from a non-registered account be moved in-kind to an RDSP?
Yes. In-kind transfers of mutual funds from a non-registered Investment Account to an RDSP are allowed. If the transferred mutual funds are Mackenzie Investment funds carrying a back-end schedule, that schedule will be maintained upon transfer to the RDSP. (Note however, that a transfer from a non-registered Investment Account to an RDSP will have income tax consequences as it will be a disposition for tax purposes).
24. Can a holder transfer an RDSP from one financial institution to another?
Yes. Although a beneficiary can have only one RDSP at any given time, transfers from one financial institution to another are permitted. The receiving financial institution can set up the RDSP account to receive the transfer, but the new RDSP will be in “pending” status and unable to request CDSG and CDSB monies. Once the transfer is completed and the original RDSP is closed out, contributions can be made to the newly-established RDSP and qualifying grant and bond monies can be requested.
Grants and Bonds
25. What is the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB)?
The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) are federal programs that provide payments to RDSPs to encourage long-term savings through an RDSP.
Grants and bonds are available to beneficiaries up until December 31st in the year they reach age 49.
Contributions can be matched, based on family income, with up to $70,000 in Canada Disability Savings Grants and up to $20,000 in Canada Disability Savings Bonds.
26. Canada Disability Savings Grant (CDSG)
• Contributions to an RDSP may qualify for payments from the CDSG, up to a lifetime maximum of $70,000
• Maximum annual CDSG - $3,500 for family income less than $91,831
• Maximum annual CDSG - $1,000 for family income over $91,831
• Family income is based on:
- Where the beneficiary is a minor, the family’s net income
- Where the beneficiary is an adult, the beneficiary’s net income (and spouse, if applicable)
*Income amounts shown are for 2017. The income amounts are updated each year based on the rate of inflation.
27. Canada Disability Savings Bond (CDSB)
• Available to beneficiaries whose net family income is less than $45,916
• Maximum annual CDSB - $1,000 for family income below $30,000
• Smaller amounts of CDSB for family income between $30,000 and $45,916
• Maximum lifetime CDSB is $20,000
• Family income is based on:
- Where the beneficiary is a minor, the family’s net income
- Where the beneficiary is an adult, the beneficiary’s net income (and spouse, if applicable)
28. What’s the basis for the income test for grant money?
• For beneficiaries over 18 years of age:
- They must file their personal income tax returns for the past two years prior to when the initial contribution
is in reference to (for example for 2008 they look at 2006 income; for 2009 they look at 2007 and so forth)
plus all future taxation years to qualify for the maximum matching grant. CRA uses the income data of
the second preceding year to determine the grant match. This is because CRA has not finished processing
the immediately preceding year’s data until the second part of the year.
• For beneficiaries under 18 years of age:
- Parents or guardians must file their income tax returns for the two years and all future taxation years, and
apply for the Canada Child Benefit to qualify for the maximum matching grant.
29. What’s the basis for the income test for bond money?
• For beneficiaries over 18 years of age:
- They must file their personal income taxes for the past two years and all future taxation years. CRA uses
the income data of the second preceding year to determine the bond eligibility. This is because CRA has
not finished processing the immediately preceding year’s data until the second part of the year.
• For beneficiaries under 18 years of age:
- Parents or guardians must file their taxes and apply for the Canada Child Benefit for the two years prior to
when the initial contribution is in reference to (for example for 2008 they look at 2006 income; for 2009
they look at 2007 and so forth) plus all future taxation years.
30. Is there a deadline for annual grant and bond requests?
Yes. The annual deadline is December 31 for grant and bond consideration.
31. Can unused grants and bonds be carried forward?
Yes, beginning in 2011, unused grant and bond entitlements can be carried forward for a maximum 10 year period (starting in 2008).
32. How does the Bond carry forward rule work?
Bond room can carry forward for up to 10 years. You do not have to establish an RDSP to generate Bond room; you just have to have been a resident of Canada who was DTC-eligible in 2008 (when RDSPs began) or later, and meet the applicable income test for the year in question.
At most, a person will generate $1,000 of Bond room in a particular year. The maximum Bond payment in a particular year is $11,000, i.e. $1,000/year * 10 years of carry forward, plus $1,000 maximum entitlement for the current year.
Once an RDSP is established for a beneficiary, if the holder applies for the Bond, ESDC will look back to the past 10 years (or to 2008) and award all Bonds generated in that period.
33. How does the Grant carry forward rule work?
Grant room can carry forward for up to 10 years. You do not have to establish an RDSP to generate Grant room; you just have to have been a resident of Canada who was DTC-eligible in 2008 (when RDSPs began) or later. At most, a person will generate $3,500 of Grant room in a particular year. However, the maximum Grant payment in a particular year is $10,500, even though the beneficiary may have accumulated substantially more than $10,500 of Grant room under the 10-year carry forward rules.
Contributions to an RDSP will first “use up” the beneficiary’s 300% room, then the 200%, then the 100%.
34. If a beneficiary sets up an RDSP after age 49, can grant and bond monies be requested until
No. Only contributions made before the end of the year in which the beneficiary turns age 49 will be eligible for matching CDSG amounts. In addition CDSB monies will be available to eligible RDSP beneficiaries until December 31st of the year the beneficiary turns age 49. This is because withdrawals (LDAPs) must begin by no later than age 60, which would cause any government monies paid into the RDSP to be clawed back by the Government due to the 10-year AHA rules.
35. How much CSDG monies would a beneficiary receive if the holder contributed the lifetime
maximum of $200,000 as a lump sum?
The lump sum of $200,000 would be eligible for one annual CDSG amount based on the initial $1,500 of the contribution. The lump sum will only attract this amount in the year the contribution is made. There would be no further CDSG monies that can be claimed in future years.
If the beneficiary has Canada Disability Savings Grant (CDSG) carry forward available to them the maximum they would receive in grant based on a $200,000 contribution is $10,500.
36. How can withdrawals be made from an RDSP?
There are two types of withdrawals (payments) from an RDSP:
1. Lifetime Disability Assistance Payments (LDAPs) – recurring annual payments that continue until the beneficiary’s death. Payments can begin at any age but must commence by the end of the year in which the beneficiary turns age 60.
2. Disability Assistance Payments (DAPs) – periodic lump sum payments that can be paid to the beneficiary any time after the RDSP is established.
These payments may be subject to the Assistance Holdback rules. This is discussed in more detail in #43.
37. Are RDSP withdrawals taxable?
RDSP withdrawals are made up of contributions, income growth, and grants and bonds. Contributions are generally not taxable, while income growth, grants and bonds are taxable in the hands of the beneficiary. Contributions are taxable if the source of the contribution was a rollover of RRSP/RRIF or RPP monies of a deceased supporting parent or grandparent or a rollover from the AIP from an RESP.
38. What is the 10-year rule?
When the RDSP was first launched and a withdrawal of any amount was made, all federal grants and bonds paid into the RDSP in the previous 10 years had to be repaid to the federal government. This is known as the Assistance Holdback Amount (“AHA”). The purpose of the AHA is to ensure that RDSPs are used for longterm savings, and also to ensure that government funds contributed are not withdrawn and used as leverage for matching grants in future years.
As of January 1, 2014 instead of having to repay all of the Government grants and bonds that were contributed to the account over the last 10 years, the ratio will be $3 of Government grants and bonds for every $1 withdrawn from the account. This is good news because it results in less financial hardship for RDSP beneficiaries who require financial assistance from time to time from their RDSPs.
39. What happens to any investment income or growth on government monies if any amounts
are repaid to the federal government?
Only the amounts paid by the government must be repaid – income and growth will be retained in the RDSP for the beneficiary to use.
40. What is the minimum amount that must be withdrawn from an RDSP when the beneficiary
reaches age 60?
When the RDSP was first launched for accounts in which government contributions are greater than private contributions (this is known as Primarily Government Assisted Plans (PGAP)), the minimum annual withdrawal must be equal to the amount determined by the Lifetime Disability Assistance Payments (LDAP) formula. For accounts where private contributions are greater than government (known as a non-PGAP), there is no specified minimum withdrawal amount.
As of January 1, 2014 a change was made and for both PGAPs and non-PGAPs where the beneficiary is over age 60 the annual minimum withdrawal must be at least equal to the amount of the LDAP formula.
41. What is the maximum amount that can be withdrawn from an RDSP?
When the RDSP was first launched the maximum amount that could be withdrawn from an account where government contributions are greater than private contributions (known as Primarily Government Assisted Plans (PGAP)) was determined by the LDAP formula. This amount includes DAPs and LDAPs.
For non-PGAPs, the maximum LDAP withdrawal is determined by the LDAP formula. There is no maximum DAP amount for non-PGAPs.
As of January 1, 2014 the maximum annual limit for total withdrawals (combined DAP and LDAP) from PGAPs was increased to the greater of the amount determined by the LDAP formula and 10% of the fair market value of the account at the beginning of the year.
42. Does being an RDSP beneficiary affect eligibility for other income-tested federal government
No. Payments from an RDSP do not impact other income-tested federal government programs, including:
• Old Age Security (OAS)
• Guaranteed Income Supplement (GIS)
• Canada Pension Plan (CPP)
• The Goods and Services Tax Benefit (GST Benefit)
• Social assistance benefits
In addition, all of the provinces have now generally agreed that provincial benefits will not be affected by RDSP income, although some provinces have a maximum income level test.
43. What happens if the RDSP beneficiary dies?
Upon death of the RDSP beneficiary, the RDSP must be collapsed. Grant and bond money that has been paid into the RDSP in the previous 10 years will be repaid to the government. Accumulated income is taxable in the beneficiary’s estate. Initial contributions are tax-free. Proceeds from the collapsed RDSP will be distributed in accordance with the beneficiary’s will or, if the beneficiary doesn’t have a will, in accordance with the rules of intestacy in each province.
44. What happens if the RDSP holder dies?
In cases where the holder is someone other than the beneficiary and the holder dies, control of the RDSP would normally pass to the holder’s executor until either a qualified family or legal guardian of the beneficiary is added to the account. In the case of a joint holder scenario, control would pass to the surviving joint holder.
45. What happens if the RDSP beneficiary is no longer DTC eligible?
If an RDSP beneficiary is no longer eligible for the Disability Tax Credit (DTC), the RDSP account must be closed by December 31 of the following year. Any grants and bonds in the account must be repaid to the Government and are lost forever.
As of January 1, 2014 a beneficiary is able to leave their RDSP account open for up to five years if they lose their DTC eligibility but expect to qualify for the DTC in the future. In this situation an election must be filed in which a medical practitioner certifies that they expect the RDSP beneficiary to regain their DTC eligibility within the next five years. With this election the RDSP account can remain open but no contributions can be made to the account, no grants or bonds can be received and no carry forward of grants and bonds can accumulate.
If a withdrawal is made the Assistance Holdback Amount would apply.
46. What happens if the RDSP holder becomes incapacitated?
In cases where the holder is someone other than the beneficiary and the holder becomes incapacitated the Power of Attorney for the holder would assume control of the RDSP
Source: Mackenzie Investments