Introducing the Registered Disability Savings Plan

According to the Canadian Council on Social Development, Canadians with disabilities are more likely to live below the poverty line than the non-disabled. To help, Canada Revenue Agency has introduced the Registered Disability Savings Plan (RDSP).

What is the RDSP?
RDSP is a registered savings plan designed to work with the Canadian Disability Savings Grant (CDSG) and the Canadian Disability Savings Bond (CDSB).

Who is eligible for the RDSP?
An RDSP beneficiary must be a Canadian resident under 60 years of age. Their T2201 form must be completed and they must be qualified for the Disability Tax Credit (DTC).

A parent, legal guardian or agency can become the plan holder in the case of a minor, or individual not legally capable of managing their finances. Anyone with written permission from the plan holder can contribute to an RDSP. There is no annual contribution limit and although contributions grow on a tax-deferred basis, they are not tax deductible.

Working with the CDSG and CDSB.
Individuals qualified for the RDSP may be eligible for the CDSG and CDSB. Plan contributions are based on the plan holder’s net family income.

For plan holders whose net family income is under $77,664, the CDSG will pay $3 for each $1 contributed to the RDSP up to $1500, and $2 for each $1 on the next $1,000 for a maximum annual grant of $3500. For plan holders whose net family income is over $77,664, CDSG will pay $1 for each $1 contributed up to $1,000 annually. Those with net family incomes below $37,832 may qualify for the CDSB, which will contribute $1,000 annually to the RDSP if their net family income is under $21, 817.

The lifetime contribution, including those from individuals, to the RDSP, the CDSG and CDSB, is $200,000.

Use and taxation of the RDSP
RDSP withdrawals by the beneficiary do not count as income, however, contributions made by the CDSG, the CDSB and income made in the plan are taxable. If the beneficiary becomes ineligible for the DTC, the RDSP is collapsed, and the CDSG and CDSB contributions made within the previous 10 years must be repaid to the government.

Leif Larsen, B.Sc.
Contributing columnist for Fehr Financial Services.