The CRA reported that more than 362,000 Canadians under the age of 49 who qualify for the Disability Tax Credit have not opened and taken advantage of a Registered Disability Savings Plan (RDSP); this has left billions of dollars in government grants and bonds uncollected.
The RDSP is a creditor-proof, registered plan that helps provide long-term security for Canadians with disabilities. Like an RRSP, but specifically designed for those living with disabilities. The non-deductible contribution can be made by anyone on behalf of the beneficiary. RDSPs feature both federal and provincial grants and bonds. Contributions must be made before the beneficiary reaches the age of 60, and while there is no annual limit, the maximum lifetime contribution limit is $200,000.
The Canada Disability Saving Grant (CDSG), is an income tested, contribution matching grant (like a RESP). A beneficiary can receive the CDSG until December 31st of the year in which they turn 49. The maximum lifetime limit for RDSP matching is $70,000. The annual limit is $3500 however, it may be reduced based on family income.
The Canada Disability Savings Bond (CDSB), is also income tested and has a maximum lifetime limit of $20,000. Lower-income families don’t even need to make any contributions to receive the $1000 maximum annual CDSB payment. Higher-income families may qualify for a pro-rated portion, depending on family income.
It is possible to ‘catch-up’ on grant and bond payments, – up to 10 years, or to the date of disability diagnosis if an individual was eligible but did not open an RDSP during that time. The following is a sample calculation starting in 2022, it shows how much financial support can be recovered. In this example, the total contributions made are $21,500, but the total catch-up grants amount to $50,500, meaning it only took five years to fully catch up and the account value reached $72,000.
Withdrawing from RDSPs, When making withdrawals from an RDSP there are no restrictions regarding the purpose for which the money will be used. However, lump sum withdrawals (Disability Assistant Payment) made within 10 years of the last grant or bond being deposited into the account will be subject to a repayment of some government monies. Annual payments (Lifetime Disability Assistance Payment) from the plan must begin by the age of 60. (Similar to a RIFF.)
If you (or someone you know) qualified for the Disability Tax Credit when you filed your tax return this year and you have not opened a RDSP, give me a call to chat about getting one started.
Have a great week,
Tracey
Source: Mackenzie Investments Disability Planning workshop held 05-03-2022. Presented by Mackenzie Institute and hosted by Michael Evans, Vice President, National Sales Initiatives, Vivek Bansal director, Tax & Estate Planning, Adrian Hawkings and Christy Licata both district Vice Presidents Retail Distribution. Chart taken directly from workshop handout; Mackenzie Exchange, event series #3
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