Written on February 19, 2016 – 2:27 pm | by Katie Ionson
On February 10, the CRA released a circular on Registered Disability Savings Plans (RDSPs, or RDSP, in the singular). A RDSP is a plan that provides savings for individuals eligible to receive the disability tax credit (DTC). To qualify for the DTC, a physician must certify that the intended recipient has a “severe and prolonged mental or physical impairment”.
There are many benefits to establishing a RDSP for a disabled beneficiary. In Ontario, a RDSP is not considered in calculating a person’s assets to determine his or her eligibility for ODSP income support. Contributions to and withdrawals (for any purpose) from a RDSP are also excluded in calculating income for ODSP eligibility purposes. These include contributions to a RDSP from a Henson trust. If an asset is sold and the sale proceeds transferred to a RDSP, the sale proceeds are not considered in calculating income for ODSP purposes, nor will an applicant for ODSP be considered to have disposed of assets for the purpose of qualifying for ODSP.
In some cases, funds can be transferred to a RDSP from other registered plans on a tax-deferred basis. A deceased individual’s RRSP or RRIF proceeds can be transferred to a RDSP for a financially dependent child or grandchild without incurring tax on the disposition of the RRSP or RRIF. Similarly, a tax-deferred rollover of the income portion of an individual’s RESP can be made to a RDSP if, among other conditions, the plans have the same beneficiary.
Contributions to a RDSP grow within the plan on a tax-deferred basis. A RDSP may also qualify for government payments in the form of the Canada Disability Savings Grant and/or Canada Disability Savings Bond. Combined, these payments can provide up to $90,000 over the course of a RDSP beneficiary’s lifetime.
On the flip side, RDSPs come with numerous rules surrounding withdrawals (minimum and maximum amounts, timing), contributions and registration. The new information circular on RDSPs is therefore a welcome guide to an important planning tool.