As the Registered Disability Savings Plan (RDSP) received royal assent and continues to gain momentum within the provinces, it is becoming increasingly likely that the RDSP may be available by late 2008 (as forecasted by the federal government).
It is now becoming more and more important for people to apply for the Disability Tax Credit (DTC) which is the eligibility criteria for the RDSP. If you want to be able to set up a RDSP for you or your family member, it will be essential that you apply for the DTC (before or along with this upcoming 2007 tax return).
This means that if the RDSP becomes available in late 2008, you or your family member will be able to set up a RDSP and begin receiving the Canada Disability Savings Grant and Canada Disability Savings Bond as soon as possible. Only those with a DTC will be eligible to establish a RDSP and receive the Grant and Bond in 2008. The Canadian Revenue Agency looks at your prior year’s tax return and DTC for the RDSP and corresponding Grant and Bond.
How do I apply and qualify for the Disability Tax Credit?
For this particular credit you will need to get the T2201 Disability Tax Credit Certificate from the Canadian Revenue Agency (CRA) and apply. Unlike many of the other available credits, rebates and deductions, this tax credit cannot be applied for on your tax return.
In order to receive a copy of the T2201 form you should visit the CRA’s website (www.cra.gc.ca/forms) or call 1-800-959-2221. Once you download or receive your certificate, you will notice that there are two portions to the T2201 form, Part A and Part B. Part A is the personal information that must be filled out by the applicant (or guardian), while Part B must be filled out by a qualified practitioner who will certify the effects of your impairment. The CRA defines a “qualified practioner” as a certified medical doctor, optometrist, audiologist, occupational therapist, physiotherapist, psychologist and a speech-language pathologist.
Once you have completed your portion of the form and your qualified practitioner has completed their portion of the form, you can send it in to your local CRA tax office (check http://www.cra-arc.gc.ca/contact/tso-e.html or call 1-800-959-8281). You can send your T2201 Disability Tax Credit Certificate any time, but it should be sent before or with your tax return so you can be accepted as soon as possible. By sending your form before you file your tax return, you may prevent a delay in your assessment. The CRA will review your application before they assess your return.
Once the Disability Certificate is obtained and accepted by the Canada Revenue Agency, it will continue to be valid for each subsequent tax year until the person’s condition changes. Therefore, it is not necessary to obtain a new Disability Certificate each year, unless so requested by the CRA.
So make sure you or your loved one apply for the Disability Tax Credit!
22 comments
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February 26, 2008 at 5:28 pm
Gayle
I have already filed my 2007 tax return. Do I now have to wait another year, until I file my 2008 tax return, to apply for the Disability Tax Credit?
February 28, 2008 at 11:53 pm
jackstyan
HI Gayle,
As we understand it you can apply for elibility for the Disability Tax Credit any time. If you have any problems, let us know.
Jack
April 6, 2008 at 11:03 am
Don
I’m a worker that has been injured and on WSIB in Ontario. I have a locked in RRSP, can it be transfered to a RDSP. If so do I pay any tax on the transfer.
April 9, 2008 at 5:55 pm
Doug Brodhead
Hi Don,
As far as we know RRSP’s cannot be rolled into an RDSP. There were some discussions about the possibility of allowing RESP’s and RRSP’s to be transferred into an RDSP at the beginning, but so far the legislation and regulations do not reflect this. This means you would probably have to cash out your RRSP, pay taxes on this money, and would then have to put it into an RDSP (which wouldn’t give you any tax deductions).
Doug
April 13, 2008 at 3:31 pm
Lillian
I was wondering whether there was any provision for disabled baby boomers who are either in their fifties or approaching the cut off age of 49 if they are low income or on social assistance (in BC) with no prospects of any inheritance coming their way or are unlikely able to work? How will the RDSP benefit this particular group of people between the ages of 48 to 59?
With the financial institutions still having to enter into issuer agreements and setting up of the details…if people who are age 48 now, can they apply by hopefully Dec 2008 even though they may turn 49 by the time everything is set up and in place? In other words, can they be grandfathered in if they apply before they turn 49 even though everything is not in place until July 2010?
Also, if NGOs are interested in applying for the proposals to help low income disabled clients apply for the DTC, where can they apply?
Thank you for all your work in this area.
April 14, 2008 at 9:53 pm
Doug Brodhead
Good questions Lillian,
For people between the ages of 48-59 the RDSP will have less benefits as they will have limited access to the grant and bond (only age 48-49 will receive them). Having said this, they will still be able to use the RDSP to invest money into a tax-free savings plan and take out money with no restrictions (in BC and NFL – stay tuned for other provincial updates).
If someone sets up the plan in December of 2008, and they are 48 years of age, they will still be able to receive the grant and bond for there 48th and 49th year. The federal government has put the grandfather clause in place for submissions for the grant and bond to allow financial institutions the opportunity to set up their systems without delaying the implementation of the RDSP in December of this year. This means, if you’re 48 you will still be able to receive the grant and bond for this year and next.
For your third question, I’m not sure exactly what proposals you are referring too? Are you talking about the potential proposals that ODI might be submitting for NGO’s to aid in financial literacy around the RDSP?
April 15, 2008 at 7:03 am
Lillian
Thank you Doug. The Office for Disability Issues just informed me that details on how Non Government Organizations can help low income families apply for the Disability Tax Credit is still not yet available.
April 25, 2008 at 11:38 pm
Joyce
A friend of mine has been disabled for the last 10 years, has been receiving persons with disability assistance from the provincial government and should have no difficulty qualifying for a disability tax credit. She recently received an inheritance from her Dad and is over the asset limit so has been cut off from PWD assistance. Would she be better off waiting until December, thus spending down her inheritance by about $900 per month and have aboout $45, 000 for an RDSP left or should she set up a trust now. Trusts seem to have much tighter restrictions on spending – so could she change her trust into an RDSP when RDSPs become available. Many thanks for all your work getting RDSPs accepted. Thanks, Joyce
April 26, 2008 at 12:05 am
jackstyan
Hi Joyce,
I find the answer to most questions like this are, it depends: her age and her province of residence are key variables. BC and Nfld have exempted the RDSP – so outside of those provinces one would be hedging ones bet to wait on the RDSP. But not every province makes it possible to use a trust so a trust may not be a great option anyway. Her age is important in that if she is 60 years, she doesn’t qualify for an RDSP and if she is 50 she doesn’t qualify for the grant and the bond.
Let’s assume she is 40 or younger and living in BC. Then setting up a trust probably makes sense. She could then use $1,500 a year to contribute to a RDSP and access the Grant (and Bond) but still have some funds available in the short term (because of the waiting period for the RDSP).
Jack
May 7, 2008 at 8:15 am
Lillian
I’m assuming that the financial institutions will be investing the RDSP money immediately and that the amount in the RDSP will hopefully be growing as time passes. With that in time, what happens when that amount of money along with the accumulated interests grow beyond the $200,000 allowable limit level but the person has not yet turned 60 years of age? (I’m thinking of parents who are able to contribute the entire $200,000 (or close to it) immediately for their young adult child.)
Am I to understand that any taxes on the money gained on the RDSP (if the financial institutions are investing it) will be deferred until the person turns 60 years old and that it will be taxed at a lower rate?
What is in it for the financial institutions? I’m assuming that they probably charge some type of fee or some percentage of the investments gained? If someone already is having a financial institution manage their investments, will the financial institutions be willing to move that money over to an RDSP? In other words, would the financial institutions lose out if people started moving their investments into RDSPs?
Thank you again for answering my many questions!
May 7, 2008 at 5:30 pm
Doug Brodhead
Hi Lillian,
Thank you for asking all your questions. I’m sure lots of people are wondering the same thing.
For question number one, the money contributed into the plan from friends, families, and other sources, is allowed to accumulate and gain interest and this will not affect the overall $200,000 allowable limit. This means that interest from contributions is not considered part of the $200,000 limit allowed over your lifetime.
So, if you were to put in 20,000 in the first year, and after 20 years this $20,000 had accumulated $1,000 in interest, you would still be able to receive another $180,000 into the plan. The $1,000 would not be counted in this limit.
For question number two, while the money is in the plan it will not be taxed. When someone takes money out of the plan (this can be before they are 60 years of age) the contribution portion of the money does not get taxed, but the income and grant/bond portion do get taxed in the hands of the beneficiary.
For question number three, the RDSP will be similar to the RESP and RRSP in that financial institutions will be able to charge fees on the investment. This will apply differently for various institutions so you will want to compare financial institutions when you set up an RDSP.
May 15, 2008 at 4:57 pm
peter motz
rdsp sound like a great idea…….what is ,and who can the holder be…
also if a plan is into its 10th year and the person passes away what happens to the money bonds and any other
May 21, 2008 at 5:21 pm
Doug Brodhead
Hi Peter,
The holder of the plan is the one who manages the plan. In this case, the holder can be the parents or guardians (if the beneficiary is 17 and younger) who will manage the plan. For adults (18 or older) a competent beneficiary must be the holder of the plan, but a parent or guardian can be a co-holder. If the beneficiary of the plan is not legally competent, the holder can be a legal guardian, a public trustee (the terminology for this changes depending on the province), and a state institution.
If a person passes away the plan is collapsed and is distributed according to the person’s will. If the beneficiary of the plan does not have a will then the RDSP is distributed pursuant to the Wills Variation Act.
May 29, 2008 at 3:52 am
Alice
In order to have an RDSP one needs to apply for a Disability Tax Credit Certificate. Once approved with Revenue Canada you can set-up a plan. It is my understanding that your RDSP will be collapsed when you no longer qualify for Disability Tax Credits.
Please explain what would take place over time when dealing with episodal mental disabilities (eg: schizophrenia)
During recovery one might not get approval for Disability Tax Credits but during a relapse one would. Approved DTC Certificates are also retroactive covering the entire time of recovery.
May 30, 2008 at 2:05 am
jackstyan
You pose an excellent question. Certainly, episodic qualification for the RDSP will be problematic given its design for long term savings. The plan is not designed for people who are infrequently debilitated. It would be good to ask Canada Revenue Agenue what they would do if one was only infrequently well: i.e. would they make give people a period of grace? Especially given the use of the plan might be years in the future.
May 31, 2008 at 7:27 am
Jordan Clark
Thank you very much for setting up this blog and answering questions.
Perhaps you can shed help answer a question relating to my situation. I have a young 3 year old son with a severe speech delay. He has qualified for the disability tax credit, which means he should be eligible for the RDSP.
My concern is we’re spending about $10,000/year on speech therapy, and expect to for a few more years. If it’s successful he probably wouldn’t qualify as being disabled at the end, though he may have other learning disabilities.
Does it make sense to open an RDSP for the grant/bond to help fund his therapy now, or is there a penalty for withdrawing it too soon or if he no longer qualifies for the account when it is already funded?
Thank you very much,
Jordan
June 5, 2008 at 5:05 pm
Doug Brodhead
Hi Jordan,
You’re right, your son would be eligible to set up an RDSP come December if he is receiving a Disability Tax Credit. Having said this, there are a few variables you will want to take into consideration when deciding whether to set up an RDSP for your son.
First, if the speech therapy is successful (which would be great), and your son then is unable to receive the Disability Tax Credit, the RDSP would be collapsed and become income for that year. Any Grant and Bond received within the last ten years would have to be paid back to government. This is a result of the government wanting it to be a long term plan, which makes it difficult to benefit early on, unless you are contributing more into the plan than the government (which allows for a lot more flexibility).
As I mentioned before, in terms of the Grant and Bond, there is something called the “ten year rule” on withdrawals. The ten year rule means that if you do not want to be penalized you will have to wait ten years after receiving the last grant and bond before you can begin withdrawing from the plan. If you decided to withdraw before this ten year waiting period is up, the plan would clawback any grant and bond received within the last ten years back to the government.
One way you could bypass these early withdrawal restrictions would be to not take any Grant and Bond, which would allow you to withdraw at anytime without penalty. Although, from what it sounds like you would want to capitalize on the Grant and Bond.
I hope this has been helpful. If you have any other questions feel free to post them here. Thanks Jordan.
June 6, 2008 at 6:03 am
Jordan Clark
Thanks Doug for the detailed response even though I’m disappointed to learn the RDSP won’t be able to help my son.
I think the RDSP is a great start, but a little short sighted. At least for disabled people like my son who have the potential of overcoming their disability. It would be far better to use the resources to help them get the intense therapy they need now instead of having to provide a lifetime of support.
The RDSP in it’s current form reminds me of the first RESP which many people unfortunately avoided for the same reason for fearing withdrawal penalties. Hopefully in time the RDSP will change like the RESP to be more flexible and accommodating.
Maybe a solution for young disabled people would be to exempt early withdrawal for some specific qualified therapy or services that are needed immediately.
Just my thoughts, thanks again for hosting this Blog.
Jordan
June 28, 2008 at 2:29 pm
Lillian
It’s been a while since I’ve logged on, but I was wondering whether you know how likely it is for the RDSP to be implemented this year or does it look more like early 2009?
What exactly are the penalities of withdrawing early from the bonds/grants if one has a need to use the money immediately/in an emergency for some health reason (eg. needing to hire a 24 hr caregiver after an organ transplant for several months?) Will the grant/bond just not be accessiblel? Any suggestions on what to do if one has to access money for a medical emergency if they have no other money in the plan other than the government bonds/grants and it hasn’t been 10 years yet?
Are there any provisions for this in the RDSP?
Also, because of the paperwork for the financial institutions, what is the smallest amount of money one needs before one can start a RDSP?
Thank you.
June 30, 2008 at 7:03 pm
Doug Brodhead
Hi Lillian,
Actually, from everything we are hearing it looks like the RDSP will be available in December of this year. The final Regulations were just published and everything seems to be going on schedule.
As for the penalty for withdrawing, the 10 year rule still applies for anyone who receives a Grant and/or Bond. If you have received any Grant and/or Bond in the last ten years before your withdrawal, any Grant and/or Bond received within the last ten years will have to be paid back to government.
What I should mention though is the change to Regulations around interest. If you receive a Grant and/or Bond and have to pay them back to government (as a result of the 10 year rule), you still get to keep the interest that they have accumulated. For the first few years this will not be substantial but it is an option.
For your question around a medical emergency, this is a tricky one. A lot will have to do with how far into the plan you are and how much of the 10 year waiting period you have left.
For instance, if you have received the Grant and Bond for 20 years and have waited 8 years after your last Grant and/or Bond was received, you will then only lose 2 years of Grant and/or Bond if you withdraw. In this case, especially if you have an emergency, it would make sense to withdraw if you needed it.
On the other hand, if you have only been receiving the Bond for 9 years and you have a medical emergency and want to withdraw, the only funds available would be any leftover interest. The $9,000 in Bond that you had received up to that point would be clawed back.
All this to say, it will really depend on your individual situation. The plan was created as a long term savings tool, and is therefore limited for someone wanting to withdraw really early from the plan. In the next week or two we will be coming out with a calculator on this blog which will allow you to see how the 10 year rule will affect these decisions. I would suggest you take a look and play around and run through some possible scenarios if you get a chance.
To answer your last question on financial institutions, you do not have to have any money before you open the plan. Some people may not receive any contributions at all if they just receive the Bond but can still open the plan.
Thank you for the questions Lillian. As usual, you bring up some really interesting points.
March 24, 2009 at 10:15 pm
Guylaine Barber
I’m looking for more information regarding the RDSP and I’m having much difficulty. My 20 year old daughteer is disabled and we have been approved for the Disability Tax Credit that I have been using for my income tax for the last 2 years. What the next step for me to open up an RDSP and deposit $1,000 a year up to 20 years like I’m told.
Any response would help… Do I need another form? Where do I get this form etc..
Thank you.
March 24, 2009 at 10:51 pm
Doug Brodhead
Hi Guylaine,
If you want more information on the RDSP, I would suggest you visit our main website at http://www.rdsp.com . This has all the information you would need to find out more about the plan, including a step by step guide on how to set up an RDSP.
Essentially, if your daughter already receives the Disability Tax Credit, you can go down to Royal Bank of Canada, Bank of Montreal, CIBC, or Odlum Brown and set up an RDSP. As long as she is a Canadian resident and has a SIN number, you should have no problems setting one up. You will want to make sure to file her income tax return for two years prior, and continue to do so every year, as this make sure she receives the amount of federal money she is eligible for.
As well, if you go to the website and on the right side click on “Join PLAN for free updates”, you will automatically be sent our 16 page Bulletin on the RDSP that should help answer all your questions.