The Registered Disability Savings Plan (RDSP)

The RDSP is a long-term savings plan that is designed to meet the needs of people with disabilities and their

families. It serves as a new tool within the financial and estate planning framework.

1. Eligibility

- An RDSP may be opened by any individual who qualifies for the Disability Tax Credit (DTC).

-  In order to qualify for the DTC, an individual must have a “severe and prolonged impairment”.

- An individual may apply for the DTC by completing Form T2201, which can be found on the Canada

Revenue Agency’s website (http://www.cra-arc.gc.ca/E/pbg/tf/t2201/).

2. Elements

2.1. Contributions

- Anyone may contribute to the plan with the written authorization of the plan holder.

- There is a $200,000 lifetime contribution limit.

- There is no annual contribution limit.

- Contributions must be made by the end of the year in which the beneficiary of the plan turns 59.

2.2. The Canada Disability Savings Grant (CDSG)

- The government will issue Grants based on plan contributions.

- The amount of each Grant is based on the beneficiary’s net family income:

Income Government Grant

Annual Contribution Required to

Maximize Grant

$77,664 or Less

$1,500 for the first $500

$2,000 for the next $1,000

$1,500 contribution results in a

$3,500 Grant

More than $77,664

$1,000 for the first $1,000

$1,000 results in a $1,000 Grant

- Net family income is based on:

- where the beneficiary is a minor, the family’s income;

- where the beneficiary is an adult (18 years or older), on the beneficiary’s income.

- Eligibility for the 2008 Grant is based on the beneficiary’s 2006 net family income.

- The maximum lifetime Grant is $70,000.

- An individual is eligible for the Grant up to the end of the year in which he/she turns 49 years of age.

2.3. The Canada Disability Savings Bond (CDSB)

- In addition to the Grant, the Bond is available to beneficiaries whose net family income is lower than

$37,885.

- No plan contribution is required to obtain the Bond.

- The amount of the Bond is based on the beneficiary’s net family income:

Income Government Bond

$21,816 or Less

$1,000

Between $21,816 and $38,832

Prorated amount of $1,000

More than $38,832

None

- Eligibility for the 2008 Bond is based on the beneficiary’s 2006 net family income.

- The maximum lifetime Bond is $20,000.

- An individual is eligible for the Bond up to the end of the year in which he/she turns 49 years of age.

3. Payments & Taxation

3.1. Types of Payments

3.1.1. Lifetime Disability Assistance Payments (LDAPs)

- LDAPs are recurring annual payments that, once started, must continue until the plan is collapsed.

- The maximum annual withdrawal limit is equal to the life expectancy of the beneficiary divided by

the fair market value of the plan.

- LDAPs may begin at any age but must begin by the end of the year in which the beneficiary turns

60 years of age.

- LDAPs can be used for disability and non-disability related expenses.

3.1.2. Disability Assistance Payments (DAPs)

- DAPs are permitted if total private contributions exceed total government Grants and Bonds.

- DAPs may be requested by the beneficiary of the plan if he/she is not the holder of the plan and if

he/she is between the ages of 27 and 59.

- DAPs can be used for disability and non-disability related expenses.

3.2. The “10 Year Rule”

- Any Grant or Bond received within 10 years of a payment must be returned to the government.

- Income earned on the Grant or Bond can be retained in the plan.

3.3. Taxation

- Each dollar withdrawn from the plan is deemed to be comprised of three parts:

- Private contribution

- Income created

- Grant/Bond

- The contribution percentage IS NOT taxable.

- The income and the Grant/Bond percentages ARE taxable.

4. The RDSP and Other Government Programs

- An individual’s RDSP will not impact any of the following payments:

- Old Age Security (OAS)

- Guaranteed Income Supplement (GIS)

- Canada Pension Plan (CPP)

- Goods and Services Tax Benefit (GST Benefit)

- Ontario Disability Support Program (ODSP).

5. Loss of Eligibility

- If a beneficiary ceases to qualify for the DTC, his/her plan is collapsed and becomes an asset of the

beneficiary.

- Grants and Bonds received within 10 ten years of the beneficiary’s loss of eligibility must be returned to

the government.

6. Death of a Beneficiary

- Upon the death of a beneficiary, the proceeds of the plan will pass to the beneficiary’s estate.

- The proceeds of the plan will be distributed according to the individual’s will.

- If the individual dies without a will, the funds will be distributed according to provincial estate laws.

- Private contributions are not refunded.

- Grants and Bonds received within 10 ten years of the beneficiary’s death must be returned to the

government.

7. Opening an RDSP

7.1. Plan Holders

7.1.1. Minors (under the age of 18 in Ontario)

- The parents or guardians of an eligible minor may set up a plan and remain holders of the plan

when the beneficiary becomes an adult.

- The beneficiary may become a co-holder of the plan upon turning 27 years of age.

7.1.2. Adults

- If a beneficiary is legally competent to manage property, then he/she must be the holder of the

plan.

- If a beneficiary is not legally competent to manage property, the holder of a plan must be the

beneficiary’s legal representative or the Public Guardian and Trustee.

7.2. Financial Institutions & Deadlines

- Individuals in Ontario can open and RDSP at one of the following institutions:

- The Bank of Montreal (BMO) - call 1-800-665-7700 to setup an RDSP with BMO.

- The Royal Bank of Canada (RBC) – through in-branch Financial Planners and Private Bankers or

by calling 1-800-463-3863.

- Individuals who open an RDSP by December 1, 2009 will be eligible for the 2008 Grant and Bond.

8. Estate Planning

- The RDSP compliments other estate planning tools.

- Families should consider incorporating the RDSP as part of their financial and estate plans, which may also

include:

- Wills

- Henson trusts

- Inheritance trusts

- Powers of attorney for property

- Powers of attorney for personal care

- Life Insurance Policies

- Registered Retirement Savings Plans

- Public and Private Pensions

- Charitable Gifts.

- Proper estate planning for families is important for ensuring the future financial security of individuals’

with disabilities.

9. Action Plan

- Apply for a social insurance number.

- Apply for the Disability Tax Credit.

- File a 2006 and 2007 tax return (two years prior to the eligibility year of the Grant and Bond).

- Open an RDSP by March 2, 2009 in order to qualify for the 2008 Grant and Bond.

- Update your estate planning documents.