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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)

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.

For those of you wanting some help filing your 2008 tax return, we have developed a 16 page Tax Bulletin designed to make it easier for you to access all the money you are eligible for and take some stress out of filing.  Available for free from www.rdsp.com, the tax bulletin is a combination of  expert, professional, and lay advice to help individuals and families navigate the complexities of their tax return.

In the Tax Bulletin you will find articles on:  the Disability Tax Credit,  the Medical Expenses Credit, the Tax Free Savings Account, the Registered Disability Savings Plan, Top Ten Tax Tips from Tax Expert Jamie Golombek, the Canada Child Tax Benefit, Taxation of Trusts, the Caregiver Credit, Estate Tax , the Working Income Tax Benefit, and much more.

If you would like to receive an electronic version of PLAN’s 2009 Tax Bulletin Navigating Your 2008 Tax Return for FREE, you can follow this link to RDSP.com and Join PLAN for free.  Once you put in your information you will be sent a follow-up e-mail with the Tax Bulletin attached.

If you would like a hard-copy you can contact PLAN at 604-439-9566 or http://www.plan.ca and have it sent to you for a small cost.

The Government of the Northwest Territories has joined the group of provinces and territories who are progressively backing the full exemption of RDSPs from affecting their provincial disability income assistance.   The Honourable Jackson Lafferty announced that the NWT Government will fully support the implementation of this program.

“Withdrawals from RDSPs will not affect federal income-tested benefits and credits, such as the Canada Child Tax Benefit, the Goods and Services Tax Credit and Old Age Security benefits.

Mr. Speaker, I am pleased to confirm today that the Department of Education, Culture and Employment will fully exempt both the RDSP asset and RDSP withdrawals from consideration in the assessment process for all ECE Income Security Programs.

The Government of the Northwest Territories supports the Federal Government’s plan for persons with disabilities. This program supports our vision to give NWT residents the opportunity to become self-reliant as individual capacity allows, to participate fully in community life, and to share in opportunities available to them in their communities.”

To view the announcement in its entirety visit:  http://www.exec.gov.nt.ca/currentnews/speechDetails.asp?varStatement_ID=773

Nova Scotia has joined the majority of provinces who are fully exempting the Registered Disability Savings Plan when calculating clients elgibility for income assistance.  Nova Scotia announced this fantastic news earlier this morning and will allow Nova Scotians receiving income assistance to fully benefit from this program.

“Many people worry about what will happen when they’re no longer here to provide care for a family member who is disabled,” said Community Services Minister Chris d’Entremont. “This will give families peace of mind by allowing them to plan a more financially secure future for their relative.

There are no restrictions on who may contribute to a Registered Disability Savings Plan and no annual contribution limit. There is a lifetime maximum of $200,000 per individual fund. The federal government recently announced that the 2008 contribution year has been extended to March 2, 2009”

This means that BC, Alberta, Saskatchewan, Manitoba, Ontario, Newfoundland and Labrador, Yukon, Nova Scotia, (and sounds like NWT), have all come out in complete support of the RDSP.  Quebec and New Brunswick have exempted the RDSP as an asset (meaning it can grow to whatever amount without affecting Disability income assistance benefits), but have capped the amount you can receive from an RDSP monthly at $305 (QB) and $800 (NB).  PEI has exempted the RDSP as an asset and income, up until someone reaches the low income threshold (go to http://www.rdsp.com for more details).  Nunavut is yet to announce their treatment of the RDSP.

To view the official press release you can visit the Nova Scotia Department of Community Services website at http://www.gov.ns.ca/news/details.asp?id=20090211002

Another question that has been coming up frequently is around applying for the Disability Tax Credit.  The approximate time it takes to process the DTC application is around 6-8 weeks (approximate), and this has many people wondering whether they can set up an RDSP before they apply for and/or receive the DTC.

The good news is that you will be allowed to set up an RDSP before you have the DTC designation, as long as you are approved for the DTC in the same year you set up an RDSP.

The Income Tax Act states that you must be eligible for the DTC in the taxation year for which the plan is opened, and does not state that you must be DTC eligible before you open an RDSP.  This is an important distinction as many people will be worrying as to whether they can open an RDSP before the March 2nd deadline to receive 2008 Grant and Bonds.

This being said, you will also want to consider the implications of setting up an RDSP before you are approved to receive the Disability Tax Credit.  If you were to apply for the DTC after having set up an RDSP, and you were deemed ineligible to receive the credit, the plan would not be certified and and any income generated in the plan would be considered income for that year. 

So, if you can, make sure to apply for the DTC and receive confirmation of your certification before setting up an RDSP.  If this is not possible, it is important to be aware that you can still set up an RDSP, but that you must apply and receive the DTC in the same year.

We at PLAN would like to wish you and your families all the best for 2009. 

Looking back… 2008 was year of many accoplishments for us.  We are pleased that our many years of work have paid off:

– the RDSP is now available to people with disabilities and families across Canada

– most provinces have made the RDSP an exempt asset for the purposed of determining eligibility for disability benefits

– most provinces have exempted income that people will receive from their RDSPs so that they will not be penalized when they receive payments from their plans

– the federal goverment has extended the dead line for 2008 contributions to March 2, 2009.

We’d like to take this opportunity to thank all of you who have assisted us in 2008.  Without your support we would not have been successful.

Looking forward… our goal is to make sure that the 500,000 families who have relatives that qualify for the RDSP have good information.  Families’ aspirations for a good life for their loved ones is our ultimate goal: nothing less will do.

We know that this is a bold vision but we think it is worth it.  We also know that success will depend on our collaborative efforts.  Here are a couple ways that you can help:

1. Spread the word about www.rdsp.com

We are on target for over 100,000 visits to this blog in 2009 – but we need to reach 500,ooo people.  So we need your assistance.  As you make your 2009 resolutions, we ask that one of them be to spread the word.  If you have access to a website or blog, link it to www.rdsp.com.  If you have family or friends who are working to secure a good life for a loved one with a disability, send them the link.

2.  Make a charitable donation to PLAN

Time has run out for 2008 charitable contributions but its the perfect time to begin to plan for 2009.   As a small, family-lead organization, PLAN’s effectiveness depends on our many friends and allies who support our work. 

If you want more information about us, visit our website at www.plan.ca.  If you decide to support our work, you can do so online at our PLAN donations page.

See you in 2009!

MPP Sylvia Jones pushes for provincial welfare changes to accommodate the RDSP in Ontario for people with disabilities. See below for article as found in the Orangeville Citizen:

Jones Bill Would Preserve Disability Benefits

Dufferin-Caledon MPP Sylvia Jones says a bill she has introduced in the Ontario legislature will prevent the provincial Liberals from “clawingback” investments made into a Registered Disability Savings Plan (RDSP).

Plans for the RDSP were announced by the federal government in its 2007 budget and the plan is slated to come into effect later this year. Its intent is to help parents and others save for the long-term financial security of a disabled child.

The federal plan allows funds to be invested taxfree until withdrawal and contributions are eligible for the new Canada Disability Savings Grant.

There is also a new Canada Disability Savings Bond for individuals with lower family net incomes.

Ms. Jones, the Progressive Conservative community and social services critic, says that as the law stands in Ontario, the RDSP would be considered an additional asset to be taken into consideration when calculating social assistance benefits. Thus, it could mean a reduced amount paid in the benefit.

To see the article in its entirety you can visit: http://www.citizen.on.ca/news/2008/0619/regional_news/017.html

To view the Press Release visit: http://www.ontla.on.ca/library/repository/monoth/11000/283589.pdf

To view the status of the Bill visit: http://www.ontla.on.ca/web/bills/bills_detail.do?locale=en&BillID=2038&detailPage=bills_detail_status

Currently BC, Alberta, Newfoundland, Saskatchewan, Manitoba, Ontario, Nova Scotia, NWT and Yukon have exempted the RDSP as an asset and/or income. Quebec and New Brunswick have exempted the RDSP as an asset but are capping the amount of income that you are allowed to withdraw from the plan (QB $305 exempt monhtly and NB $800 exempt monthly). Prince Edward Island has announced that they will exempt the RDSP as an asset and income up until the low income threshold (see http://www.rdsp.com for more details), and Nunavut has currently not indicated how they will treat the RDSP.

We will be updating this blog consistently and letting you know as soon as the provinces announce their intentions.

BC is the first provincial government to respond to the RDSP. The BC Government has opened the door for people with disabilities and their families to use the RDSP in securing the future and improving their lives.

Minister Claude Richmond and his colleagues have exempted RDSPs as assets for determining eligibility for Disability Benefits. They have also exempted all income from RDSPs, allowing people to use the plan in whatever way they see fit without any penalties.

BC has set the high watermark for other provinces to reach for.

The BC Government’s act represents a new way forward, a huge first step in a new prosperity agenda for people with disabilities. This action begins to turn disability benefits into a floor, encouraging people with disabilities to get ahead, rather than a ceiling, above which people can’t expect to rise.

This move represents a huge improvement on BC’s trust rules, which were already among the best in the country. It also sets the stage for even further improvements.

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