Registered Disability Savings Plans


Registered Disability Savings Plans (RDSP’s) are a very effective financial planning tool for your loved ones who live with a mental illness, however, the details can be daunting, even overwhelming.  That being said, my goal is to share some important information so that you have an understanding of how RDSP’s work.  I would encourage you to print or save this article for reference. 

RDSP’s became available in 2008 and was championed by the late Minister of Finance, Jim Flaherty.  Mr. Flaherty had a passion for helping individuals with disabilities and understood the need to do so as his own son faced challenges. RDSP’s provide deferral of taxes and significant government grants through Canada Disability Savings Grants (CDSG’s) and Canada Disability Savings Bonds (CDSB’s).  RDSP’s are a registered investment account with the purpose to provide financial security for children or grandchildren that qualify for the Disability Tax Credit.   Click here for more information on the Disability Tax Credit. 

An RDSP can be opened by any of the following:

  • a parent,
  • a guardian, 
  • an institution legally authorized to act for the beneficiary
  • someone eligible for the Disability Tax Credit themselves·

An RDSP account can hold any normal investment securities applicable to a registered investment account, i.e. RRSP/RRIF/TFSA.  They can be self-directed or managed by your Wealth Advisory Team. 

Contributions to an RDSP are not tax deductible, although income earned on contributions grow tax free.  When withdrawn from the plan, contributions are not taxable, only growth and grants are taxable income to the beneficiary.  The lifetime maximum contribution limit to an RDSP is $200,000.  Contributions can be made into the plan until the end of the year the beneficiary turns 59, and there is no annual limit to contributions, however there are annual limits to the CDSG’s and CDSB’s, so appropriate planning can be made to maximize government payments. 

Canada Disability Savings Grants (CDSG’s) are determinate on family net income (indexed to inflation) and annual contributions.  The grants are the amounts that the Government will pay into the RDSP.  The lifetime limit of CDSG grants is $70,000.  The grants are available for individuals 18 years of age to 49 years of age in the preceding year, to an annual limit of $3,500 per year.  The Government grants match 300%, 200% or 100% of contributions based on family income.  When family income is more than $89,401 (2016), the CDSG grant is 100% of contributions.   When family income is below $89,401 (2016) the CDSG grant is 300% of the first $500 of contributions in the year, plus 200% of the next $1,000 of contributions.  Thus an annual contribution of $1,500 yields a CDSG of $3,500. 

The Government of Canada will also pay Canada Disability Savings Bonds (CDSB) up to $1,000 a year to RDSP’s of low and modest income families, even if no contributions are made.  The

lifetime limit of bonds is $20,000.  When family income is less than $26,021, the bond is $1,000.  When family income is between $26,021 and $44,701, part of the $1,000 is paid.  

Unused grant and bond entitlements can be carried forward up to 10 years, from the end of the year the beneficiary turns 49 years of age.   The annual maximum that can be paid out in one year is $10,500 in grants and $11,000 for bonds.    

Let’s put this in perspective with some examples:

 

Example 1

Example 2

Example 3

Family Income [1]

        > $89,401

Between  $44,701 and  $89,401

Less than $26,021

Contributions per year

$3,500

$1,500

$500

Qualifies for

CDSG’s

CDSG’s

CDSG’s and CDSB’s

After 20 years:

 

 

 

      Total Grants

$70,000

$70,000

$50,000

      Total Contributions

$70,000

$30,000

$10,000

      RDSP Account Balance [2]

$140,000

$100,000

$60,000

[1] Income levels are for 2015.  
[2] Does not include growth of underlying investments.

Overall, Registered Disability Savings Plans are a very beneficial financial planning tool.  They are able to utilize significant government grants and payments to help ensure financial security for your loved ones.  Please be advised that there are further intricacies of RDSP’s.  Consult your Wealth Advisory Team before making any investment decisions.  

- Andrew Brydon, CPA, CA
Wealth Consultant, Wealth Stewards Inc.