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1. Receive up to $70,000 from the federal government in matching contributions. The federal government has implemented the Canada Disability Savings Grant program to assist Canadians with disabilities to save for their futures.

The federal government will contribute up to $3,500 per year to your RDSP through the Canada Disability Savings Grant program, if your net family income is below $81,941. (Family income is that of the beneficiary if the beneficiary is 18 years or older). The government’s matching contribution rates are as follows:

– $1,500 on the first $500 that you or your family contribute to your RDSP, and

– $2,000 on the next $1,000 that you contribute.

2. Receive up to $20,000 from the federal government without making a contribution. The Canada Disability Savings Bond program will contribute up to $20,000 into your RDSP if you have a low income.

The federal government will contribute $1,000 per year to your RDSP through the Canada Disability Savings Bond program, if your net family income is below $23,855. (Family income is that of the beneficiary once the beneficiary is 18 years or older.) A smaller amount is contributed into your RDSP if your incomes is between $23,856 and $40,970 – all without you making a contribution yourself.

3. Saving in an RDSP doesn’t affect other disability benefits. Your provincial disability benefits are not affected when you save in an RDSP, no matter what province or territory you live in. Federal government benefits, like Canada Pension Plan, Disability Benefits, Old Age Security and Guaranteed Income Supplement are also not affected.

When it comes time to withdraw your money from your RDSP, the federal government – and most provincial governments – have said that you can use any amount from your RDSP without affecting your benefits.

Quebec, New Brunswick and Prince Edward Island have said that your benefits won’t be affected until your monthly income is greater than a certain amount. (In New Brunswick, you can receive $800 per month; in Quebec, $300 per month; and in PEI, you can receive an amount that brings your income to the low income levels as defined by the National Council of Welfare.)

Remember that when you turn 65, your go off of your provincial disability benefits and on to the federal government programs for seniors: Old Age Security and Guaranteed Income Supplement.

4. Compound Interest. When you save money and invest it in an RDSP, it begins to earn you income. After only a few years, your RDSP’s annual investment income is greater than your annual $1,500 contribution. You can see in the table below that if you earn 5% on your savings, your annual investment income is greater than your annual contributions after only 5 years.

    Your Contributions Federal  Gov. Contributions Income on Investment Total RDSP Savings
    Year 1
    $1,500
    $4,500
    $300
    $6,300
    Year 2
    $1,500
    $4,500
    $615
    $12,915
    Year 3
    $1,500
    $4,500
    $946
    $19,861
    Year 4
    $1,500
    $4,500
    $1,293
    $27,154
    Year 5
    $1,500
    $4,500
    $1,658
    $34,811

 

5. You can spend your RDSP money on anything you want. Neither the federal government nor provincial governments have placed restrictions on what you can spend your RDSP money on. It’s yours – you can do what you want with it.

6. Anyone can make contributions to your RDSP. You. Your parents. Your grandparents. Your brothers, sisters, aunts and uncles. Even your friends. And when they contribute, the federal government contributes even more – up to three times more!

7. If you receive a lump sum amount, you can shelter you money in an RDSP. If you receive an inheritance, a legal settlement or a large severance payment, you may be able to put it into an RDSP for future use without affecting your federal or provincial disability benefits.

8. The income that you earn on your savings in an RDSP is tax deferred. You only have to pay tax when you make withdrawals from your RDSP. And you pay tax only on the government contributions and the investment income in your RDSP. You don’t pay tax on the money that you have contributed.

9. People will begin to see you differently. People have told us that when they own a valuable asset, others treat them like investors, customers and home owners rather than people with disabilities.

10. You will have more choices. Think what a difference it would make to have a bit more money so that you could begin to do things that you can’t financially do now.

(from www.rdspresource.ca)

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Several reforms important to people with disabilities became law in mid-December when Bill C-47 (the last of the budget Bills) was passed by the Senate and given Royal Assent.

In his budget, Finance Minister Flaherty announced carry forward provisions for the Canada Disability Savings Grant and Bond as well as provisions for the rollover of RRSPs and RRIFs to the RDSPs of sons, daughters and grandchildren.

1.  Carry Forward Provisions for RDSP Grants and Bonds

Effective 2011, people’s Canada Disability Savings Grant and Bond entitlements can be carried forward.

When a person opens an RDSP, Canada Disability Savings Bond entitlements will automatically be calculated and paid into the plan for the preceding 10 years (but not before 2008, when the RDSP was launched).  This means people opening RDSPs in January, 2011 will can qualify (based on income) for up to $4,000 in Canada Disability Savings Bond – $1,000 for each of 2008, 2009, 2010 and 2011.

At the same time, the balances of unused CDSG entitlements will be determined for the same period. If contributions are made to the RDSP, Canada Disability Savings Grants will be paid on unused entitlements, up to an annual maximum of $10,500.  The matching rate on unused entitlements will be the same as if the contribution were made in that year.  In addition, contributions will be used against Grant entitlements at the highest rate first.

That means a contribution of $2,000 into a new RDSP in 2011 will result in a Canada Disability Savings Grant payment of $6,000 ($2,000 x 300%).  Combined with the Canada Disability Savings Bond, the result will be $10,000 from the federal government.

That’s equivalent to turning $2,000 into $12,000!  See table below:

Canada Disability Savings Bond $4,000
Contribution $2,000
Canada Disability Savings Grant $6,000
Total in RDSP $12,000

2.  RRSP/RRIF Rollover to a Registered Disability Savings Plan

The new provisions will permit parents and grandparents to rollover RRSPs and RRIFs, at death, to the RDSPs of financially dependent children and grandchildren, on a tax deferred basis.  A person is generally considered to be financially dependent if their income is below a specific threshold ($17,621 for 2010). A person whose income is above this amount may also be considered to be financially dependent if dependency can be demonstrated.

Normally any assets held in RRSPs and RRIFs become income in the year of the death.  When these assets are passed to the RDSP of a child or grandchild, the tax that would normally be payable is waived.

The amount of the rollover may not exceed the beneficiary’s available RDSP contribution room. That means as much as $200,000 can be rolled into a new RDSP.  If contributions have already been made then the amount will equal $200,000 minus previous contributions (This doesn’t include federal government contributions).

The rollover will count as contributions towards the beneficiary’s lifetime limit but will not be matched by Canada Disability Savings Grants. The rollover will be considered private contributions for the purpose of determining whether private or government contributions are greater. But because the rollover will not have been subject to income tax, it will be considered taxable when withdrawals are made.

The rollover is effective for deaths occurring on or after March 4, 2010. For deaths of an RRSP annuitant after 2007 and before 2011, special transitional rules will apply.

I’ve been asked to let you know that PLAN is migrating the blog onto a redesigned http://www.rdsp.com at some point in the next couple of weeks.  Our technology experts are working hard to make this migration seamless but want to ask that if things are a bit “wonky” during this period, that you please be patient, they will work to resolve any issues as quickly as possible.

Thanks for your patience.

The Honorable James Flaherty, Minister of Finance, has once again taken the initiative to ensure that people  with disabilities are able to access the RDSP.

You are probably aware that the Disability Tax Credit (DTC) is one of the key eligibility requirements to open an RDSP.

You might not be aware that most determinations made by Canada Revenue Agency under the Income Tax Act can be appealed to the Tax Court of Canada.  This includes applications for the Disability Tax Credit.

There is, however, currently a law, that prevents people from making an appeal to the Tax Court of Canada unless it affects their tax payable.   This means that if a person has insufficient income to pay taxes, and has nobody to transfer the Disability Tax Credit to, then a determination on their eligibility for the DTC cannot be appealed to the Tax Court (even if it might affect their ability to open an RDSP).

Minister Flaherty today announced his intent to change this legislation:

“Procedural issues of this nature should not be an impediment for individuals who wish to establish their right to the Disability Tax Credit and, as a result, also their right to open an RDSP.

“To promote the fair and equitable treatment of Canadians, I intend to introduce legislative amendments at the earliest opportunity so that individuals can, in every case, appeal a determination concerning their eligibility for the Disability Tax Credit.” – Minister James Flaherty

Press Release

A number of you have expressed frustration in not being able to transfer your RDSP from one financial institution to another.  Part of that frustration has been that the messages have been conflicting – you should be able to transfer…you can’t transfer yet…you will be able to transfer soon…we don’t know when you will be able to transfer.

We have checked in with the federal government and financial institutions in an effort to find out what is going on, what the solutions are and how we can move this agenda forward.

First, we can report that all parties are aware of the problem and people’s frustrations.

As a lay person, I had a difficult time understanding what all the difficulty is about.  But in speaking with people, I came to understand that it’s a bit more complicated.  The crux of the matter is determining what information needs to be transferred along with the RDSP.  Financial institutions need to maintain information to be able to calculate holdback amounts, taxes, payments permitted etc.  Not only that, they all need to agree on what they will transfer and maintain so that when they receive a transferred RDSP, they have the appropriate information or if they are sending an RDSP, they will send the right information.  All of this takes time.

While some of you will be frustrated waiting one day longer, it appears that we are still about three to six months from everything being worked out and transfers occurring in a pretty easy manner.  That would be somewhere between January and March (and possibly before).

We have heard of people managing to get funds transferred – but it isn’t an easy process at the moment.   If you absolutely can not wait, then we’d recommend that you take it up the line within the bank – some banks might be willing and able to make it work for you.

One of the most challenging aspects of future planning is finding people to shepherd the plan far into the future.  Therefore, it is not surprising that setting up an RDSP presents the same issue – who can help manage the financial aspects of the plan if help is needed?  If you haven’t opened an RDSP yet, read on.

For those who need assistance in managing their finances, someone with the following qualities is required:

–          The must know and care for you or your loved one

–          They must know about RDSP’s

–          They must be trustworthy

–          They must be willing

–          They must be a long term prospect

Finding the right person may be as easy as asking a sibling or as difficult as approaching an acquaintance or going to court. However, taking the time and care to do so provides both practical assistance in managing an RDSP asset and peace of mind in knowing that asset is in good hands.

Step 1:  Get the facts!

The person who oversees an RDSP is called a holder.  They are the RDSP’s shepherd.  They oversee contributions, investments and payments.

The person who the RDSP is set up to assist is called the beneficiary.

There are three possibilities for a holder:

  1. The beneficiary is a child (17 years or younger) – Parents or legal guardians MUST be the holder until they are 18 and then parents MAY continue as the holder.  If they are able, the beneficiary can become sole or co-holders when they are 18 (or older).
  2. The beneficiary is 18 or older and able to manage independently – The beneficiary MUST be the holder unless another person is given legal authority to manage the RDSP.
  3. The beneficiary is 18 or older and needs assistance in managing the RDSP – This is where you need to find someone who fits the ‘job description’ checklist above.
    • In BC, a Representative can be appointed under the Representation Agreement Act. Check out www.plan.ca or www.nidus.ca for more information and support.
    • You may apply for an “adult guardianship” order.  The legislation is different in each province and the “adult guardian” has different names from province to province (Committee – BC; Trustee – AB; Adult Guardian – ON; Curator – PQ).  We don’t recommend guardianship – see our book Safe & Secure (link to information about Safe & Secure) for more information – but you may not have another option.

Step 2. Act!

Get more information about your options:

–          Talk to your bank – Are there any obstacles around holdership and what does the bank recommend?

–          Talk to PLAN – You are seldom the first person to face a challenge.  Find out what others have done by reading the rdsp.com blog and signing up for our ezine for regular updates (links)

–          Talk to family and friends.  No matter the solution, you don’t want to be the lone shepherd on the journey.

Step 3.  Get Involved! – Advocacy

Our advocacy motto is: “When it’s broken, fix it!”

PLAN lobbied the Minister of Finance to create a federal Representation Agreement for the RDSP.  He determined that the issue was provincial but brought measures to carry forward the Grant and Bond so people wouldn’t be penalized. This gives the provinces time to address the issue of representation and support around managing an RDSP.

The next advocacy step is to work directly with each of the provinces.  At PLAN, we are committed to seeing changes in legislation that support people to make their life decisions and manage their affairs without losing their rights.

PLAN is also working closely with RBC to explore bank-generated solutions to making the RDSP more accessible to adults who do not have legal capacity. They are a committed partner and dedicated to making the RDSP available and accessible to as many people as possible.

If you are interested in working on this issue with PLAN, email Jack Styan at jstyan@plan.ca

Human Resources and Skills Development Canada is holding two discussion groups about communication materials the government is developing that will provide information about services for eligible Registered Disability Savings Plan (RDSP) applicants.

They are seeking parents and legal guardians of someone who is eligible for the RDSP grant and/or bond to participate. In appreciation of their time and involvement, qualified participants will receive $135.00 cash at the end of the session.

The discussions will be conducted on Wednesday,  September 1st in the evening (one group at 6:00pm, and one at 8:00pm) at a downtown location.  The groups will last 2 hours.

Participation in this project is voluntary.  All information collected will be used for research purposes only and administered according to the Privacy Act.  The names of participants will not be provided to any third party.  There are no sales involved nor will you or the participants be contacted by any organization as a result of their participation.

To register, contact Fai Vapiwalla at 1-800-277-7530 or fai@rischristie.com.

By Matthew Quetton, CEO, PLAN

Truthfully, I am terrible with money; great at spending it, terrible at saving it. When I met with a financial planner for the first time last year I realized just how much I was behind the game. Failing to buy a house as a young couple, we were now virtually locked out of the market. Without the equity of a small condo behind us, and with two young children requiring the space of at least a small 3-bedroom, we were not able to afford even the smallest space that would be suitable for us. We did have some money saved in an RRSP, thank goodness, which we’d be able to apply to a down payment should things improve. But the fact that Leslie had not returned to work for the 7 years since Theo was born continued to pose a challenge to getting ahead financially. With Theo’s daily needs and array of specialists and appointments to manage, it just hadn’t been feasible for her to return to work. With the children continuing to grow, and our housing needs with them, the prospect of home ownership continued to recede, and our hopes for security with it. Fears for Theo’s future were deeply compounded by our financial uncertainty. We were facing a future decidedly different from the one we previously assumed we’d enjoy.

Caught in the midst of this vicious cycle, we were introduced to the RDSP for the first time. Here, at last, was something to give us hope. It certainly wouldn’t solve all our problems – or Theo’s – but was finally something that seemed to offer the prospect of breaking the downward spiral we’d fallen into. Perhaps something we could rally around, maybe even getting friends and family involved. It felt like there was light at the end of the tunnel.

Signing up was easy. In fact, it made me immensly proud to march down to the bank with our tax returns, proof of Theo’s eligibility, and sign up for the world’s first savings vehicle for people with special needs. It was pretty cool really; we qualified for something special, something not every Canadian could participate in. The hard work we did to manage Theo’s care was being rewarded, the uncertainty of our future was being recognized and supported. I was almost starting to feel like my old self again!

It went even beyond us; opening Theo’s RDSP felt like we were participating in something great. I had been contributing at PLAN for a few months and had become aware of just how large a challenge the RDSP had been for PLAN to advocate for. It went way beyond just convincing the banks to open the accounts. Securing Ottawa’s support for the Grants and Bonds was a challenge with the Finance Department. Even tougher was the challenge with the Provinces to allow for the accumulation of savings inside the RDSP without affecting elligability for disability benefits. Now, for the first time ever, being disabled did not mean being in poverty.

It was the effects of this amazing achievement I was feeling when I boasted later to my father-in-law about opening Theo’s account. As a retired commercial loans officer, he knew I wasn’t kidding when I told him it was the best investment on the planet. Normally you’d have to be Warren Buffet to get the kinds of investment returns the RDSP delivers together with the Grants and Bonds. As well, the recent change allowing my father-in-law to roll the balance of his RRSP directly into Theo’s RDSP is a huge benefit creating a significant tax savings. So we’d done it. We had entered the world of financial respectability, and he proved it by sending some checks to deposit in Theo’s account. It was a subtle but powerful shift: ee were no longer the ‘unfortunate’ destined to grovel for handouts at the pleasure of the state. We were full financial citizens, benefiting from supports from the state to be sure, but able to hold our heads high, under our own steam and with the respect of our parents and peers. We’d always been proud of our ability to make our own way, so participating in the RDSP went a long way to restoring our sense of self.

We did encounter some problems later on, however. I was notified by the bank that in fact they did not have the correct paperwork to secure the government contributions. My return trip to the bank illustrated to me just how complicated the RDSP was to manage, both for the bank and the government. The Financial Planner I met with was even more confused by the paperwork than I was, and had to make several phone calls to finally determine what was required. We got things sorted out but as an entrepreneur, it got me wondering about what the RDSP was like as a product for the bank. I happened to know some folks at Bank of Montreal and at RBC through my work at UBC so I asked them: Was the RDSP good for them? ‘Yes’, and ‘No’, they told me. ‘Yes’ in the long run, since the bank benefits from the funds on deposit. But ‘No’ in the short run. Turns out it actually costs the bank money to open an RDSP. The application is complicated and clients have a lot of questions about the grants, bonds, and withdrawal rules.

Makes sense: All that time I spent with the planner fixing our paperwork, was time she couldn’t spend with another client. Ultimately the bank is thrilled to have additional funds on deposit and knows additional business can come their way; I might open another account along with the RDSP. But I realized how much I needed to support the banks in rolling out this groundbreaking product, that, for the time being at least, was going to cost them money, but create in incredible foundation for the well-being of potentially tens of thousands of disabled Canadians.

Admittedly there are some changes still required to improve the RDSP: in Provinces without the benefit of BC’s Representation Agreement it can be tricky to administer the fund without Guardianship, the withdrawal rules deny older fund holders from the benefits of the Bond and Grant, and there’s other ways it can still be improved. But the more I learn about PLAN and other friends and champions of the RDSP, the more confident I am that their efforts will continue to improve it. Rome, as they say, wasn’t built in a day after all.

So while it might not be perfect – yet – the RDSP is a breakthrough for families of people with special needs. It allows us to participate credibly with our peers, moving us out of a state of legislated poverty. It helps restore our hope and dignity as we manage the daily challenges of raising a child with special needs. And it certainly makes me a little less terrible with money, which is good for Theo.

In the early days of the RDSP, a financially astute parent said, “If you want to maximize the benefit of the RDSP (and you have the cash to afford it), you should put $171,500 into the plan in the first year and then an additional $1,500 per year each of the next 29 years.”  It makes sense from a purely mathematical perspective.  In 30 years time (with an average annual return of 5.5%) the RDSP will be worth approximately $1,000,000.

This method maximizes the federal government contributions, it maximizes the tax savings and it takes advantage of provincial government rules that permit people on disability benefits to have an RDSP.  In other words it is useful from both a saving and an estate planning perspective.  But this scenario makes a couple of vital assumptions:

  • That you have $171,500, and
  • That your relative is already 18.

Recently, I had a conversation with an equally astute parent who added a third vital assumption to the list.  You have to be able to invest the $171,500 for a long period – nearly to thirty years.  He emphasized, “If you withdraw any amount before thirty years from the time you open the plan, you will have to repay some amount to the federal government.  While it’s money you wouldn’t have had anyway, most people are adverse to this idea.”

This is really important because a lot of families might be able to find that much cash but they would need to borrow against a home or cash in an RRSP or other asset.  That asset may represent their emergency cushion that they would use for themselves or their relative if something unforeseen arose.  That is, they cannot be sure that they can part with it for 30 years.

The significance of this latter point is that most families will find the RDSP useful either as a saving or an estate planning tool but not both.

As a saving tool, an investment of $30,000 over 20 years will net as much as $90,000 in Canada Disability Savings Grant and Bond from the federal government.  Thirty years from starting, the RDSP will be worth about $350,000 (with an average annual investment return of 5.5%).  That’s great.

As an estate planning tool, $200,000 contributed to a plan after the beneficiary turns 50 will not garner any federal contribution.  It will, however, earn income on a tax deferred basis.  And any amount can be withdrawn at any time without any penalties from the federal government. In most provinces, these withdrawals (of any amount) will have no impact on the beneficiary’s disability benefits.

So in summary, the RDSP is a great savings vehicle and it is a great estate planning tool but – unless you can part with your investment for the long haul, it does not serve both purposes at one time.

Poster-RDSP Chinese Telelearning -July21-2010

PLAN  is hosting a Chinese RDSP telephone seminar for Chinese families across the country July 21, 2010. Please see the attached poster for more information.

RDSP Teleseminar (Mandarin)

Date and Time: Wednesday, July 21, 2010 – 5 PM to 6:30 PM (Vancouver time)

Register

– by phone: 604-439-9566

– by email: inquiries@plan.ca

– by website: www.forthefuture.ca

殘障人士註册儲蓄計劃(RDSP)是加拿大政府新訂的一項儲蓄計劃,能幫助我們有殘障的親人建立長遠的經濟保障。殘障人士福利計劃倡導會 (PLAN) 將為加拿大華語家庭安排兩個中文RDSP 電話遙距講座,日期在2010年6月16日和7月21日。如果與您有聯系的華語家庭中有需要知道關於RDSP 資訊者,希望你能幫助將所附上海報交給他們。謹此致謝!

RDSP電話中文講座日期和時間: (溫哥華時間)
2010年7月21日(星期三)下午5時至下午6時 30分(國語)
報名電話:604-439-9566
電郵報名:inquiries@plan.ca

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