Registered Disability Savings Plan RDSP Plans Canada

Author: James Cawley
Published: 2009/02/12
Topic: Canada Pension Plan - Publications List

Page Content: Synopsis - Introduction - Main

Synopsis: Canada leads the way with the worlds first Registered Disability Savings Plan an innovative policy attracting international attention.

Introduction

Main Item

Canada leads the way with the worlds first Registered Disability Savings Plan an innovative policy attracting international attention.

The RDSP is a new vehicle that will assist families in planning for the long-term financial security of our relatives with disabilities. Over time, the RDSP will provide billions of dollars to supplement income, enable home ownership, and enhance quality of life for as many as 700,000 Canadians with disabilities.

The world's first Registered Disability Savings Plan, an innovative policy that's already attracting international attention.

Similar to a Registered Educational Savings Plan, the RDSP is designed specifically for people living with a disability. It allows anyone already eligible for a disability tax credit to invest savings tax-free until withdrawal, up to a lifetime limit of $200,000. Friends and family members can also contribute to the RDSP of a loved one.

Through the disability grant, the government will provide up to $3 in matching funds for every $1 invested, to a maximum of $3,500 a year. The disability bond provides $1,000 annually to the plans of the most vulnerable, low-income families unable to contribute anything themselves.

Canadians with net family income under $75,769 a year get $1,500 in federal grants on the first $500 contribution to an RDSP each year, $2,000 in grants for the next $1,000 annual contribution, and if income is over $75,769, $1,000 in grants for a $1,000 contribution to a maximum of $70,000 for all contributions made by age 49.

For low-income families, those with a family income of less than $21,287, they are eligible for a $1,000 a year Canada Disability Savings Bond grant, regardless of whether any contribution is made. The maximum is $20,000.

The money in an RDSP can be used for any purpose that benefits the plan's beneficiary. A beneficiary must be a resident of Canada under age 60, have a social insurance number and be eligible for the disability tax credit as defined in the Income Tax Act (Canada).

The Bank of Montreal, which has branches across the country, started offering RDSPs to Canadians in December 2008. People are now able to set up a plan with BMO and begin saving for their future. Bank of Montreal became the first national bank to offer the plans in Canada.

The approximate time it takes to process the DTC application is around 6-8 weeks, and this has many people wondering whether they can set up an RDSP before they apply for and/or receive the DTC. The good news is that you will be allowed to set up an RDSP before you have the DTC designation, as long as you are approved for the DTC in the same year you set up an RDSP. The Income Tax Act states that you must be eligible for the DTC in the taxation year for which the plan is opened, and does not state that you must be DTC eligible before you open an RDSP.

RBC to offer registered disability savings plans

RBC Financial Group will offer Registered Disability Savings Plans (RDSPs) as of Feb. 16, 2009. The RDSP was introduced in the 2008 federal budget.

"RDSPs are designed to help Canadians with disabilities and their families ensure long-term financial security," says David Birkbeck, head of registered products strategy with RBC. "Our role at RBC is to help Canadians understand how they can benefit from the RDSP and we are encouraging clients to take advantage of these new plans prior to the March 2 deadline for 2008 federal government contributions."

The RDSP allows eligible Canadians to save and invest for themselves or for a family member while deferring tax. Contributions may be eligible for federal government matching grants of up to $3,500 annually, and the plan may be eligible for government bond amounts of up to $1,000 annually.

Alberta announced that they will be fully exempting the RDSP as an asset and income for people receiving provincial financial assistance programs. This means that BC, Newfoundland, Saskatchewan, Manitoba, Alberta and Yukon have all come out and fully exempted the RDSP.

BC is the first provincial government to respond to the RDSP. The BC Government has opened the door for people with disabilities and their families to use the RDSP in securing the future and improving their lives.

If you reside in Quebec and you set up an RDSP, it can grow to an unlimited amount without affecting your Disability Benefits. Unfortunately, payments from the plan have been only partially exempted from affecting provincial disability benefits. You are allowed to withdraw $300 in income a month for an individual adult, and $340 in income a month for a couple, and your disability benefits will not be affected.

Manitoba has now become the fifth province/territory to fully exempt the RDSP, including British Columbia, Newfoundland and Labrador, Yukon, and Saskatchewan. Manitoba residents will now be able to fully benefit from the plan without fear of having their Disability Benefits clawed back by asset and income tested Disability Benefits.

Although not a complete exemption, the NB Government will fully exempt RDSP assets when calculating clients' eligibility for income-tested programs such as social assistance and social housing benefits. Clients will be eligible to receive up to $800 a month from an RDSP, in addition to their social assistance.

Nova Scotia has joined the majority of provinces who are fully exempting the Registered Disability Savings Plan when calculating clients eligibility for income assistance.

The provincial government of Newfoundland and Labrador has amended its regulations to exempt the RDSP from the calculation of income support benefits.

The Ontario Government also took the opportunity to raise the amount Ontarians can receive as a gift or payment from a trust from $5,000 to $6,000 a year.

Prince Edward Island has announced that they will exempt the RDSP as an asset and income up until the low income threshold (see www.rdsp.com for more details), and Nunavut has currently not indicated how they will treat the RDSP.

The Minister of Social Services for Saskatchewan Donna Harpauer is quoted as saying, "the exemption of RDSP assets and income from social assistance calculations makes sense for a number of reasons. Most importantly, it will encourage individuals with disabilities and parents of children with disabilities to create RDSPs without having to worry that the assets will be clawed back when withdrawals are made on behalf of the beneficiaries."