The Registered Disability Savings Plan (RDSP) is a new program introduced by the Government of Canada in 2009.  The goal of the program is to help people save for the long-term financial well-being of their loved ones with severe disabilities.

To qualify for an RDSP, the disabled person must:

•  be a resident of Canada
•  have a Social Insurance Number
•  be under the age of 60
•  be approved for the Disability Tax Credit through the Canada Revenue Agency (CRA).

The disabled person is the beneficiary, and anybody can contribute to the plan on his/her behalf.

There is no annual limit to the amount that can be contributed, but lifetime contributions are capped at $200,000.  Contributions are not tax deductible, so, as a result, are not taxable when they are withdrawn from the plan.  Investment income earned within the plan accumulates tax-free but will be included in the beneficiary’s taxable income when it is paid out.

Although some disbursements from the RDSP may be taxable to the disabled person, the Province of BC will not use this income to determine eligibility for any disability assistance payments (similar rules exist in other provinces).  Neither will any assets in the plan be used to calculate disability assistance payments.

To further encourage the use of the RDSP the government has added two further incentives – the Canada Disability Savings Grant and the Canada Disability Savings Bond.

CANADA DISABILITY SAVINGS GRANT (CDSG)

The CDSG is a top-up contribution made by the Government of Canada into the beneficiary’s RDSP.  The amount of the grant is affected by both the beneficiary’s family income, and the amount contributed to the plan.

To qualify for the CDSG the beneficiary of the RDSP must:

• file a tax return (if the beneficiary is under 18 then the parents/guardians must file)
• have contributions made into the RDSP in the year.
• be under 50 years of age for the entire calendar year.

There is an annual limit of $3,500 for the grant and the lifetime grant limit is $70,000.  All grant money received will be taxed in the hands of the beneficiary when it is paid out.

The actual amount of the grant is outlined below in a table from the Human Resources and Skills Development website.

*The beneficiary family income thresholds are indexed each year to inflation. The income thresholds shown are for 2009.

CANADA DISABILITY SAVINGS BOND (CDSB)

In addition to the CDSG discussed above there is also a Canada Disability Savings Bond (CDSB) available to lower income families.

The bond is income dependant with a limit of $1,000 per year.  The lifetime bond limit is $20,000.  As with the CDSG all Bond money received will be taxed in the hands of the beneficiary when it is paid out.

The beneficiary must have a RDSP in order to recieve the bond but no other contributions need to be made during the year.

To qualify for the CDSB the beneficiary of the RDSP must:

The actual amount of the bond is outlined below in a table from the Human Resources and Skills Development website.

*The beneficiary family income thresholds are indexed each year to inflation. The income thresholds shown are for 2009.

PAYMENTS FROM THE PLAN

Payments from the plan are limited to:

Once the beneficiary reaches age 60 and the plan matures, annual disability assistance payments must be made.  The maximum annual withdrawal is dependant on the beneficiary’s life expectancy and the fair market value of the plan.

DAPs may also be taken earlier (between age 27 and 59) provided that the fair market value of the plan stays above the assistance holdback amount which is the amount of government grant and bond money paid into the plan in the preceding ten year period.