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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.

Laura Mackenrot, a disability advocate from BC recently wrote an article for the BC Coalition of People with Disabilities (BCCPD) on the RDSP that was very interesting and really pinpoints the important characteristics of the plan.  She herself is eligible for the RDSP and will be signing up for the plan when it becomes available in December.  Her description of how she will use the plan to really accumulate a significant amount of savings is a really good example of how a modest investment can result in a impressive return.  

“An important feature of the RDSP is that the Ministry of Housing and Social Development will not classify it as an asset. If you are receiving the Persons With Disabilities (PWD) benefit from the provincial government, you will be permitted to save over $3,000 if it is invested in an RDSP. This means you do not have to worry when the amount exceeds the $3,000 limit that is currently placed on those receiving PWD. As well, money held in an RDSP will not affect the application process if you are applying for PWD or any other government assistance program.

Personally, I will be using my added part-time income to contribute $125 a month into the plan to maximize my investment for retirement. If I do this for 33 years, and don’t take any money out before I turn 60, then I should have $870,000 if I choose mutual funds with an average growth rate of 8%.”

To read the article in its entirety visit: http://www.bccpd.bc.ca/rdsp.htm

If anyone is looking for additional information about the RDSP there is another resource which I thought I would mention.  Planned Lifetime Advocacy Network (PLAN) conducts free RDSP telelearning seminars on a tri-monthly basis.  The telelearning seminars will give you a good understanding of the potential of the RDSP and how your family might use it and let you know what work needs to be done (federally and provincially).  

Topics that we discuss within the seminar include: Elements of the Disability Savings Plan; Comparisons with RRSPs and RESPs; the Disability Tax Credit; Opening and Directing an RDSP; Contributions; the Canadian Disability Savings Grant and Bond; the “10 Year Rule”; Taxation; Scenarios; Federal Implications; Provincial Implications; RDSP vs. Trusts; Getting Ready for the RDSP; and “Keeping Informed”.

The goal of the telelearning seminars is to really give people a thorough understanding of the RDSP so that they can make financial decisions knowing all the things that need to be considered when opening an RDSP.  We have question-periods throughout the seminar, if you have any related questions around the presentation or details around the RDSP.

If you would like to participate in a free telelearning seminar you can visit www.plan.ca and look under “Resources”, click on “Workshops and Seminars” and you will see the next available dates for the telelearning seminar, or call Planned Lifetime Advocacy Network (PLAN) at 604-439-9566.  

The RDSP telelearning seminar is accessible from anywhere in Canada and uses a toll-free number for participants to call in.

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