On February 27, 2018 the federal government tabled its 2018 budget, Equality + Growth: A Strong Middle Class (“Budget 2018”). One of the budget items that has not received a lot of attention is the extension of the “qualifying family member” (“QFM”) provision for Registered Disability Savings Plans (“RDSP’s”).
The “holder” of an RDSP is the person who opens the RDSP account. The holder is also the person who makes contributions to the RDSP and can authorize other persons to make contributions to the RDSP. The Income Tax Act (Canada) (“ITA”) sets out rules for who can be the holder of an RDSP. The beneficiary of the RDSP can be the holder if the beneficiary is an adult who is capable of entering into a contract. If the beneficiary is a minor, the holder can be a person who is legally authorized to act on behalf the beneficiary under provincial or territorial law, such as a guardian, tutor, or curator (“Authorized Person”), a public department, agency or institution that is legally authorized to act for the beneficiary (“Authorized Agency”), or a legal parent of the beneficiary.
What happens if the intended beneficiary of an RDSP is an adult person who is not capable of entering into a contract? Until 2012, the holder could only be an Authorized Person or an Authorized Agency; a legal parent of the intended beneficiary could not be the holder of the RDSP. In 2012, the government amended the ITA to introduce the temporary QFM provision. The measure was intended to address concerns about the time and costs involved in appointing an Authorized Person, which can be considerable.
A QFM includes a legal parent of the intended beneficiary of an RDSP, and the spouse or common-law partner of the intended beneficiary if they are not living separate and apart because of the breakdown of the relationship. Under the QFM provision, a person who qualifies as a QFM in relation to an intended beneficiary can be the holder of an RDSP for that beneficiary if:
- the intended beneficiary is an adult;
- the intended beneficiary is not already the beneficiary of an RDSP;
- there is no Authorized Person or Authorized Agency who could be the holder;
- in the opinion of the issuer (i.e. the trust company that offers the RDSP), after “reasonable inquiry”, the capacity of the intended beneficiary to enter into the RDSP is “in doubt”; and
- the RDSP is opened before the end of 2018.
Budget 2018 extends this provision for five more years so that it will apply to RDSP’s that are opened before the end of 2023 if the other requirements are met. The QFM measure does have its limitations. A QFM cannot be the successor holder or assignee of an RDSP except in limited circumstances. It is also not mandatory in that issuers are not required to include a QFM option as part of its RDSP. And, of course, the provision remains a temporary measure. In the budget document the government says that it continues to “encourage” provinces and territories to develop streamlined processes for appointing legal representatives for incapable persons. Nevertheless, extending the QFM provision is better than terminating it, and so it is a welcome inclusion in Budget 2018.