Registered Disability Savings Plans (RDSP) – The Basics

What is a Registered Disability Savings Plan (RDSP) and How Will it Affect ODSP Payments?

An RDSP is a tax-assisted savings plan introduced by the Canadian federal government to provide for the long-term financial security of those living with disabilities.  In December 2008, the Ontario government confirmed that both the funds in a Registered Disability Savings Plans (RDSP) and payments from an RDSP will not be taken into account when determining a person’s eligibility for provincial disability benefits known as ODSP (Ontario Disability Support Program).  As a result, persons with a disability who live in Ontario and who qualify for an RDSP can benefit from opening an RDSP without impacting his or her entitlement to ODSP.
Who Qualifies and Who Can Open the RDSP?

Any Canadian resident under the age of 60 and who qualifies for the federal Disability Tax Credit (DTC) may have an RDSP.  The person who may open the RDSP is one of the following:

• if the person with a disability is 18 or over and mentally capable, the person him or herself,
• if 18 or over and not mentally capable, the person’s legal representative (most often this means a guardian of property),
• if the person is under 18, a parent or guardian.

What is So Special About RDSPs?

Growth or investment income accumulates within an RDSP on a tax-free basis.

Once withdrawn from the RDSP, the funds (excluding non-government contributions) are taxed in the hands of the beneficiary, that is, the person with a disability.  Contributions to RDSPs are not tax deductible and are not taxed in the hands of the beneficiary when withdrawn.

The beneficiary, or his/her family and friends may contribute to the RDSP.

If the beneficiary qualifies (both family income and plan contributions are considered) and is 49 or younger, Canada Disability Savings Grants (CDSG) are available annually to a lifetime maximum of $70,000.

If the beneficiary qualifies (only family income is considered) and is 49 or younger, Canada Disability Savings Bonds (CDSB) are also available annually to a lifetime maximum of $20,000 in CDSBs.   Note that CDSBs may be granted whether or not any contributions have been made during the year.

An RDSP has a $200,000 lifetime contribution limit; however, there is no annual contribution limit. There are no restrictions on when the funds can be withdrawn or for what purpose they are used.  However, if funds are withdrawn within 10 years of receiving CDSGs or CDSBs, those amounts must be repaid.

Will RDSPs replace Henson Trusts?

In my view, most families will find that Registered Disability Savings Plans complement but do not replace Henson Trusts as a means of providing financial assistance to those living with disabilities.  This is largely due to the current maximum contribution of $200,000 which, even with the additional funds provided by CDSGs and CDSBs, are unlikely to provide sufficient funds for the individual’s financial security particularly if disability-related expenses are substantial.  For more information about Henson Trusts, see our brochures: Providing for a Family Member with a Disability (http://tinyurl.com/mmybke) and Henson Trusts — Acting as a Trustee (http://tinyurl.com/nt9so9) which are available by selecting the links provided or on our website at www.nefflawoffice.com.