Registered Disability Savings Program

An RDSP is a registered savings plan established by the Federal Government to assist families in saving for the long-term financial security of individuals with severe disabilities. Government matching and extra funding for low-income beneficiaries’ form part of the Plan. Contributions to the plan are not tax deductible, but the earnings grow tax free while held in the plan.

Who can open an RDSP?

You can open an RDSP and be the plan holder if you are:

  • A person with a disability who is the age of majority and has the capacity to manage his or her finances; or
  • The legal parent of a sibling (recently added) of a child with a disability who has not reached the age of majority; or
  • A guardian or other representative who is legally authorized to act on behalf of a person with a disability

When a plan is opened by a beneficiary’s legal parent, the parent may continue to be the plan holder after the beneficiary reaches the age of majority.

The plan holder does not have to be a Canadian resident.

Who can be a beneficiary?

An RDSP beneficiary must have a valid Social Insurance Number (SIN) and be:

  • Eligible for the Disability Tax Credit (DTC)—for details on the DTC, visit the Canada Revenue Agency (CRA)
  • A Canadian resident when the plan is set up and when each contribution is made
  • Under age 60 when the plan is opened, since contributions cannot be accepted after the end of the year the beneficiary turns 59

A beneficiary can only have one RDSP at a given time.

The earlier you begin, the more your loved one will benefit.

Contributions

There’s no limit to how much can be contributed in a year, but there is a lifetime limit of $200,000 for total contributions. In addition:

  • Contributions are eligible for generous government assistance up until age 49.
  • Contributions are not tax deductible, although investment growth is tax-deferred.
  • Anyone can contribute as a gift for the beneficiary with written consent from the plan holder.

Government Benefits

There are two types of government benefits available to help support an RDSP beneficiary

  • Through the Canada Disability Savings Grant (CDSG) the government deposits money into your RDSP, providing matching grants of 300%, 200% or 100%, depending on the amount contributed and the beneficiary’s family net income. The maximum is $3,500 per year, with a lifetime limit of $70,000.
  • Through the Canada Disability Savings Bond (CDSB) the government deposits money into the RDSPs of low and modest income Canadians. If you qualify for the bond, you could receive up to $1,000 a year, with a lifetime limit of $20,000. A CDSB does not require you to make any contributions.

Withdrawals

RDSP withdrawals, called Disability Assistance Payments (DAPs), can be made to the beneficiary at any time and for any purpose. However, the beneficiary must start receiving regular payments, called Lifetime Disability Assistance Payments (LDAPs) by the end of the year they turn 60. Once LDAPs start, they will continue for the life of the beneficiary.

If the plan holds money from the CDSG or CDSB, there are other rules that can impact withdrawals:

  • For each $1 withdrawn, $3 of any CDSG or CDSB paid into the plan in the 10 years prior to the withdrawal must be repaid, up to a specified maximum.
  • If the majority of the funds in the RDSP are from the CDSG or CDSB, then there are limits on what can be withdrawn in a year.

Overwhelmed with all the rules? Let us prepare a Contribution Worksheet specific to your situation so you can easily see the benefits it will provide.

Impact on Other Support

RDSP asset values and payments do not affect eligibility for Federal Government benefits such as the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit and the Canada Child Benefit. These payments will also not affect Old Age Security, Guaranteed Income Supplement and the Canada Pension Plan and in most provinces, you will still qualify for existing provincial social assistance programs like ODSP.

Taxes

Withdrawals include a blend of taxable and non-taxable amounts.

Contributions are not included as taxable income when paid out of an RDSP. However, investment growth plus any CDSG and CDSB amounts in the plan are included in the beneficiary’s income for tax purposes when paid out of the RDSP. Withdrawals after a specified threshold are subject to withholding tax at source.