Home About OFCP Contact Programs Resources Donate to OFCP RDSP Information Home / Programs / Planning / Planning Resources / RDSP Information The RDSP is a savings plan that was introduced by the Federal Government of Canada in 2007 and implemented in December 2008. The focus of the RDSP is that of a long term savings plan for people with severe disabilities that will help to enhance their well being in the future. It is modeled after the Registered Education Savings Plan which means that the contribution of money into the RDSP does not result in an immediate tax reduction to the contributor. Earnings within the RDSP accrue on a tax deferred basis which means that there is no requirement to pay taxes on the growth within the plan until funds are withdrawn. Payments coming from the plan can be used for any purpose and must begin no later that the year in which the person with the disability turns age 60. In order to qualify for the RDSP, the person with the disability must qualify and continue to qualify for the Disability Tax Credit under the Income Tax Act. The RDSP has a structure which involves the Plan Holder and the Plan Beneficiary. The beneficiary of the RDSP is the person with the disability. The plan holder is usually the person who establishes the plan and who has control over the financial aspects of it. The plan holder can be the plan beneficiary if that person has the ability to enter into legal contracts. If the beneficiary of the RDSP is under age 18, a plan can be established by the parent or legal guardian. If the beneficiary is over age 18, a plan can be established by the individual himself if he is legally competent or by his legal representative if he is not. A legal representative would be a Power of Attorney for Property or a Legal Guardian. An RDSP contains three elements. These are: Private Contributions, Canadian Disability Savings Grants and Canadian Disability Savings Bonds. Each of these will be discussed next. Private Contributions: Once an RDSP has been established, anyone can contribute to the plan provided the plan holder has given written permission to that effect. This means that the beneficiary's parents, family members, neighbours and others, including the person with the disability can make deposits into the plan. This represents a significant benefit to the person with the disability since those people who may have been looking for a way to contribute financially his well being now have a vehicle in which to do so. These contributions are limited to a lifetime maximum of $200,000 but any amount, subject to the $200,000 limit, can be contributed annually. Spreading of large deposits over a number of years may be more advantageous as will be seen when looking at the Canadian Disability Savings Grants and Bonds. When a private contribution is made, there is no income tax deduction for the contributor and these payments can only be made up until the end of the year that the beneficiary turns age 59. As of July 1, 2011, for deaths occurring after March 3, 2010, the Government will allow a rollover of a deceased individual's RRSP or RRIF proceeds and certain lump-sum amounts paid from a registered pension plan (RPP) to the RDSP of the deceased individual's financially dependent, infirm child or grandchild. However, these rollover amounts will not be part of the Canadian Disability Savings Grants or Canadian Disability Savings Bonds calculations. (see below) Canadian Disability Savings Grants: A very significant component of the RDSP is the CDSG. The Federal Government of Canada will make contributions to an existing RDSP as Canadian Disability Savings Grants when private contributions are made up until a lifetime maximum of $70,000 is reached or until the end of the year in which the RDSP beneficiary turns age 49. The amount of grant in a specific year is based on the net income of the parents of the RDSP beneficiary until he or she reaches 18 years of age and on the individual's own income if they are over age 18. If the net income is less than $83,088 (2011 numbers) then the first $300 of private contributions will attract a CDSG of $1,500 and the next $1,000 of private contributions will attract $2,000 for a total CDSG of $3,500 for a total private contribution of $1,500. If the net income is over $83,088 then a contribution of $1,000 will attract a maximum of $1,000 of CDSG. This amount or any combination of grants will apply annually until the maximum lifetime grant of $70,000 is reached or until the end of the year in which the RDSP beneficiary reaches age 49. Canadian Disability Savings Bonds: In addition to the Canadian Disability Savings Grants, the Federal Government has introduced the Canadian Disability Savings Grants. The CDSB are available to lower income families up to a lifetime maximum of $20,000. These funds are available up to $1,000 per year until the $20,000 maximum is reached or until the end of the year in which the RDSP beneficiary reaches age 49. No Private Contribution is required at all if the net income is below $24,183 and the Government will deposit $1,000 to the plan. This amount is reduced proportionately if the income is between $24,183 and $41,544. (2011 numbers) For most people in Ontario who receive ODSP payments, an annual contribution of $1,500 will result in a contribution from the Federal Government of $4,500 until a total of $90,000 of grants and bonds is reached. Starting in 2011, you will be allowed to carry forward unused grand and bond entitlements to future years. The carry forward period can only start after 2007 and is for a period of 10 years. Payments From the RDSP: As time goes on, the RDSP is expected to accumulate Private Contributions, Canadian Disability Savings Grants, Canadian Disability Savings Bonds and interest earned on those deposits into a plan. The intended goal is to provide for the long term benefit of the beneficiary of the RDSP. In order to benefit from a plan, payments must be made from the plan. These payments can be used for any purpose. There are two types of payments that can be taken from an RDSP. The first type of payment is called the Disability Assistance Payment. The DAP is defined as being a periodic withdrawal from the RDSP at different points of time through out the life of the plan. These withdrawals can only be made if the Private Contributions made into the plan are greater than the Government Contributions to the plan. For most people; those who will only make the minimum contribution to attract the maximum government grants and bonds, this payment from the RDSP will not be possible. If a payment from the plan is made, any and all CDSG and CDSB contributions for the prior ten years must be repaid to the Government. This is called the Holdback Amount and could amount to $45,000 of repayment to the Government. In addition, the amount of the payment is further limited by the need to insure that at least the Holdback amount remains in the plan. The second type of payment from the plan is called the Lifetime Disability Assistance Payment. This payment must begin no later than the beneficiary's age 60 and once these payments begin, they can not stop. The size of the payment is determined by formula based on the life expectancy of the beneficiary of the RDSP. The standard life expectancy has been set at age 80 + 3 years. If a doctor will attest to the fact that a person's life expectancy is less than age 80 then the formulae can be adjusted. As an example, if the beneficiary of the plan begins the payments at age 60, then the size of the payments will be 1/23rd of the value of the fund. If the beneficiary begins the payments at age 50, the size of the payments will be 1/33rd of the value of the fund. Taxation of Payments From a RDSP: Each payment that is made from an RDSP is considered to be made up of three components as determined by a formula in the legislation that created the RDSP. The first component is Private Contributions and these come out of the RDSP on a non taxable basis. The second component is Canadian Disability Savings Grants and Canadian Disability Savings Bonds. Both of these components are taxable in the hands of the beneficiary of the RDSP. The final component is the income that has been earned on the private contributions, CDSG and CDSB contributions. This income has not been taxed throughout the accumulation period and so is now taxable in the hands of the beneficiary of the RDSP. Death of the Beneficiary: When the beneficiary of the RDSP dies, several things occur. Firstly, all CDSG and CDSB payments made into the RDSP during the prior 10 years are fully repayable to the Federal Government. After that, taxes must be paid by the estate of the deceased beneficiary and then distributions can be made. These distributions are based on the will of the beneficiary assuming that he or she has the mental ability to created one and that one has been created. If no will has been created then the Provincial Estate Laws will be followed. These laws generally provide for a distribution to the disabled person's next of kin. If at all possible, the preferred basis of distribution of the balance of a Registered Disability Savings Plan is the will of the beneficiary of the plan. Benefits of the Registered Disability Savings Plan: The RDSP has a number of benefits to most people with disabilities in Ontario. To make use of the Federal Government's generous grants and bonds makes sense to most people and their situations. The accumulation of these funds along with the income that they earn in a tax deferred vehicle will enhance the size of the savings over the long term. The eventual withdrawal of funds from an RDSP will enhance the quality of life of the person with the disability. Registered Disability Savings Plan and the Henson Trust: The RDSP can be viewed as an enhancement to the Henson Trust in that they will complement each other. The Henson Trust and funding of it through Life Insurance policies has always had to deal with the effects of inflation. Inflation may eventually eat away at the purchasing power of the dollars that are being left behind by families in the Henson Trust. Now there is the RDSP which can be seen as a "top-up" tool. It will "top-up" the dollars that have been left into the Henson Trust and thereby help to offset the decreased purchasing power over time of the life insurance left into the Henson Trust. The RDSP must be viewed as a supplement to the Henson Trust; not a replacement. The restrictions on the withdrawal timing and amounts on the RDSP limit its effectiveness when more that the legislated withdrawal amounts are needed by the person with the disability. The Henson Trust has no such restrictions and so larger, periodic amounts can be taken from it. It can also be noted that sometimes the RDSP funds will be available before the Henson Trust. Generally the Henson Trust funds will become available at the death of the parents while the RDSP funds may become available before the death of the parents and no later than the year in which the beneficiary turns age 60. The combination of the Henson Trust and the RDSP will move us closer to the providing of our sons and daughters with the decent quality of life that they deserve. RDSP Links: 1. Human Resources and Skills Development Canada 2. PLAN of BC | Visit our PLAN of BC blog 3. Special Needs Planning Group 4. 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