Registered Disability Savings Plan

Registered Disability Savings Plan (RDSP) is a long-term savings plan intended to help Canadians with severe and prolonged disabilities and their families save for the future.  The Government of Canada will help encourage and support savings by contributing matching grants and income-tested bonds into RDSP.

Canadian residents whose disabilities have been certified on Form T2201 can become a beneficiary of RDSP.  A beneficiary can only have one RDSP at any given time, the account can be opened in a participating bank until the end of the year in which the beneficiary turns 59.

For those who are unlikely to survive more than five years or who elect to opt in, his or her RDSP may become a Specified Disability Savings Plan, which has different rules in withdrawals.

RDSP Beneficiary

A beneficiary is the person who can withdraw funds and receive payments from PDSP in the future.  To become a beneficiary under RDSP, an individual with disabilities must:

• Be eligible for the disability tax credit;
• Be a Canadian resident;
• Be under the age of 60; and
• have a valid social insurance number;
• Remain a Canadian resident at the time when RDSP is open, and contributions are made to it.

RDSP Holder

A plan holder is the person who can make or authorize contributions on behalf of the beneficiary.  Plan holders do not have to be a Canadian resident and there can be multiple plan holders for one RDSP at any time.

Over the lifetime of RDSP and under certain conditions, the holder can change.  If at any time the plan holder ceases to be an eligible holder, they must be replaced with someone who is eligible to be a holder.  There must always be at least one holder at all times.  For example, if the beneficiary’s mother is the plan holder and she dies, the beneficiary or the beneficiary’s subsequent legal guardian will need to replace the deceased parent as the new plan holder.  A holder can also be an entity who attains rights under RDSP as a successor or assignee of a plan holder.

Minor Beneficiary

If the beneficiary is a minor, a legal parent of the beneficiary can become the plan holder. In the alternative, an individual (qualified family member (QFM)) or a public department that is legally authorized to act for the beneficiary can also become a plan holder such as the Public Guardian and Trustee of British Columbia.

Adult Beneficiary

If the beneficiary is a legally capable adult, the beneficiary can open an RDSP for themselves.  If their parent(s) are holders of a previously opened RDSP, the beneficiary can either take over and become the sole plan holder or be added as a joint holder along with their parents.

If the beneficiary is an adult who may not be able to legally enter into a plan, a QFM can be their plan holder and open RDSP for the beneficiary.  An adult may fall into this category if he or she lacks the mental capacity to enter into a legal contract, including but not limited to intellectual disability, advanced dementia, and severe depression.  The Income Tax Act requires a plan holder to be a legal representative of the beneficiary, or a successor named by the initial eligible plan holder.

RDSP Contributions

Holder Contributions

With written permission from the plan holder(s), anyone can contribute to a beneficiary’s RDSP until the end of the year in which the beneficiary turns 59 years old.  There is no refund of contributions to the contributors once the contribution is made and the contributions are not deductible from the contributor’s taxable income.

The contributions may be withdrawn, but that will result automatically in a repayment of proportionate amount of the funds paid into this RDSP by the government, which amount is based on the contribution by the plan holder.  For example, if to receive the maximum government contribution the plan holder needs to contribute $5,000 but the plan holder contributed $6,000, if the plan holder withdraws $1,000, 1/5 of the government contribution will be repaid back to the government.

There is no annual limit on amounts that can be contributed to RDSP.  There is an overall lifetime limit for a beneficiary of $200,000.  The following is not considered a contribution:

• the grant;
• the bond;
• payments made by a designated provincial program;
• amounts transferred from another plan (RRSP, RPP, RRIF, PRPP, SPP, RESP);
• earnings within the RDSP;
• retirement savings rollovers;
• investment income from an education savings rollover.

Issuers are required to ensure that contributions to an RDSP do not exceed this limit.  RDSP is considered non-compliant when contributions have exceeded the lifetime limit, which could result in the termination of RDSP.

Government contributions – Grants and Bonds

Under the Canada Disability Savings Grant, matching federal government contributions are available depending on the annual family income of the beneficiary and contribution for the beneficiary by the holder or a person authorized by the holder.  If the annual family income is under $98,040, a plan can receive up to $3,500 a year in government matching grants under the Canada Disability Savings Grant.  Otherwise, the grant is capped at $1,000 per year.  The government matches individual contributions made to the plan up to 300% of the contributed amount until December 31 of the year in which the beneficiary turns 49.  The grant is capped at $3,500 per year and $70,000 (20 years) over the beneficiary’s lifetime.  The Government of Canada may only pay grant and bond into the RDSP until December 31 of the calendar year in which a beneficiary turns 49 years old.  This “cut-off” date is intended to ensure that all grants and bonds remain in the RDSP for at least 10 years before the beneficiary turns 60.  This requirement is intended to promote long-term savings.

The Canada Disability Savings Bond makes additional contribution to the plan, up to $1,000 per year for maximum 20 years, if the beneficiary’s adjusted family net income is under $49,020.  There is no contribution for the beneficiary by the holder or a person authorized by the holder required.

Government Contributions – Repayments

If the beneficiary makes withdrawals from RDSP before the age of 60 or sooner than 10 years after the last government contribution, all of some of the government contributions may need to be repaid.  Consequently, part of the funds in the plan may be reserved in the Assistance Holdback Amount (AHA) and saved for potential repayments.  The AHA is made up of all the Canada Disability Savings Grant (grant) and Canada Disability Savings Bond (bond) that have been paid into the RDSP within a 10-calendar year period for the beneficiary by the Government of Canada (less any amounts previously repaid).  The AHA may also need to be repaid when a beneficiary becomes ineligible for the Disability Tax Credit, passes away, or closes the RDSP.

RDSP Payments

Beneficiaries must begin (at the latest) regular withdrawals from their RDSP no later than December 31 of the calendar year in which they turn 60.

A beneficiary or a beneficiary’s estate can receive RDSP payments via Disability Assistance Payments (DAP) or Lifetime Disability Assistance Payments (LDAP).  DAP is any payment from RDSP to the beneficiary or to the beneficiary’s estate. There is no limit on the amount of DAP payable to the beneficiary in a specific year except for LDAP.

Both types of payments permit the beneficiary to withdraw funds from their RDSP unless the balance of the plan is lower than the AHA.

LDAP is a recurring withdrawal made from RDSP, payable to the beneficiary.  Once LDAP starts, in contrast, it must be paid at least annually until either RDSP is terminated or the beneficiary passes away.  This type of payment must begin by the end of the year when the beneficiary turns 60 years old.

A beneficiary only needs to pay tax on RDSP income, which includes withdrawal from the government matching contributions, investment income of the plan and proceeds from rollover.  However, the taxable portion is excluded from the beneficiary’s income when calculating certain benefits, such as GST credit, Canada Child benefit, social benefit repayment and the refundable medical expense supplement.

A payment can also be made to transfer funds directly from one RDSP to another for the same beneficiary.  Since a person can only be the beneficiary of one RDSP, once funds are transferred from one RDSP to another, the previous RDSP is closed.  A transfer is not a withdrawal and therefore it is not taxable.