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As many of you are probably aware, the amount of Canada Disability Savings Grant and Canada Disability Savings Bond you receive annually is based on your annual income from two years prior.  As such, it is very important that you submit a tax return each and every year, even if you do not have any income.  By submitting your tax return, you will ensure that you get the full amount of Grant and Bond that you are eligible to receive.

When the federal government assesses what amount of Grant and Bond you are eligible to receive they will look at your annual income for two years prior.  Once they verify that you are within a certain income level, they will deposit the corresponding amount of Grant and Bond into your Registered Disability Savings Plan.  As a result, it is important to keep track of what the eligible level of incomes are for the Grant and Bond every year.  Indexed for inflation, these eligible income levels will change every year.  

For 2009, the new family income thresholds for the RDSP Grant and Bond are:

Canada Disability Savings Grant

To be eligible for the full $3,500 annual Grant, which can be received for $1,500 of contribution, your annual family income will need to be less than or equal to $77,664.

If your annual family income is more than $77,664, you are still eligible for the matching Grant of $1,000 per year.

Canada Disability Savings Bond

To be eligible for the full $1,000 annual Bond, which can be received with no contribution, your annual family income will need to be less than or equal to $21,816.

If your family income is between $21,816 and $38,832 in 2009, you can still receive a partial amount of the annual Bond.

** It is important to remember that when the beneficiary is a child, these income thresholds will be based on the family net-adjusted income.  As soon as the beneficiary of the RDSP becomes an adult, it will be their personal net-adjusted income which is counted for the purposes of the Grant and Bond.  If the beneficiary has a spouse, the income levels will be based on the family net-adjusted income.

** For those of you who were not able to get your tax return done in time for the 2008 deadline, you will still be able to receive the full amount of 2008 Grant and Bond you are entitled too, as long as you set up your RDSP, contributed before March 2, 2009, and eventually file your tax return.  Having said this, the longer you wait to file your tax returns, the longer it takes to leverage the full Grant and Bond into your plan, and there will probably be a small loss of investment growth as a result.

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Yesterday the Regulations for the Registered Disability Savings Plan were published in Part 2 of the Canada Gazette (p.16-20). As expected there were not a lot of changes following the consultations held by the federal government in Ottawa, Montreal, Toronto and Vancouver. The one substantial change that came out of the original draft regulations was the earnings from the Grant and Bond have been removed from the assistance holdback amount.

Originally, if people withdrew early from the plan and had received a Canada Disability Savings Grant or Bond from the government, the total amount of the Grant and Bond including earnings, would be clawed back. In the final Regulations published yesterday, this need to include earnings in the assistance holdback amount has been withdrawn. The passage below is an excerpt from the Gazette which outlines this change.

“Some representatives from financial institutions expressed concern about the administrative complexity surrounding the assistance holdback amount. The Government originally proposed that the assistance holdback amount be comprised of the CDSG, CDSB and any earnings they generate. In response to concerns
raised by financial institutions regarding the difficulty in tracking earnings generated from the CDSG and CDSB, the Government removed earnings from the assistance holdback amount. In the Regulations, the assistance holdback amount will only be comprised of the CDSG and CDSB. This change is expected to ease
the administrative burden and cost for financial institutions while being less punitive for people with severe and prolonged disabilities who hold an RDSP.”

The federal government has committed to conducting a review of the RDSP in 3 years, so this isn’t the last opportunity we will have to request amendments to the Regulations.

To access the final Regulations you can click on the following link: http://gazetteducanada.gc.ca/partII/2008/20080625/pdf/g2-14213.pdf

Make sure to take a look at the A Primer on Special Needs blog for a really interesting post on the RDSP and trusts. Michelle Morgan Coole, a really savvy legal analyst from Nova Scotia argues that the RDSP, with its raised asset allowance and treatment of income, should lead to an improvement of the treatment of trusts.

To view the article click on this link: http://specialneeds-ns.blogspot.com/2008/06/gone-gone-gone-youve-been-gone-too-long.html

We have been getting a lot of questions concerning the status of the RDSP lately, so I will give everyone a quick update.

The RDSP will become available in December of this year. Currently the Federal Government is working on finalizing the Regulations to accompany the legislation. The Regulations were made public for consultation in late March and received feedback from community members, financial institutions, NGO’s and other various stakeholders.

We are expecting the final Regulations to be out by the end of June at which point the Federal Government will be looking to draft agreements with financial institutions who are interested in offering RDSPs to their customers. After the Federal Government has drafted these agreements, the financial institutions in question will begin creating their systems required to administer and track the RDSPs.

As soon as we know which financial institutions are offering the RDSP we will be posting a list on this blog. We are expecting that you will be able to set up an RDSP at a local bank starting in December of this year.

When looking at the RDSP we have found it helpful to compare it to the Registered Retirement Savings Plan (RRSP) and Registered Education Savings Plan (RESP). As the RRSP and RESP have been around for a long time, people can relate a lot more easily to the RDSP when we examine the incentives, treatment of income, and withdrawals from all three.

I think the first question that most people ask when looking at the RDSP is: what is the incentive to contribute into the RDSP other than helping your family member or friend with a disability? I think the RRSP is the main reason this question pops up so often and has conditioned us to look for a return on this type of plan. So what are the incentives for all three plans?

With the RRSP the incentive is a tax deduction. If you contribute into an RRSP you receive a tax deduction from the government based on the value of the contribution and depending on your income. As you pay more tax on higher incomes, the more income you have the larger your tax deduction.

With the RESP the Canadian Government provides incentive to contribute into the plan through the Canada Education Savings Grant. The CESG will contribute up to $200 on the first $500 you save annually in your child’s RESP, and up to $400 on the next $2,000. Unlike the RRSP, the RESP does not provide a tax deduction.

The RDSP is very much like the RESP in terms of incentives as it provides the Canada Disability Savings Grant that matches contributions into the plan. For someone with an income below or equal to $74,357 they can leverage $1500 for the first $500 contributed into the plan, and $2000 for the next $1000, up to $70,000 over 20 years. For someone with an income above $74,357 they can receive a matching grant of $1000 on the first $1000 contributed, up to a maximum of $20,000 over 20 years.

The similarity of the plans also extends to the treatment of income within each plan. When individuals receive contributions into the plan, those funds then become “sheltered” from any taxation while they are in the plan. This means that for the RRSP, RESP, and RDSP, you can receive contributions into the plans but will only be taxed on withdrawals.

Another difference between the plans is the withdrawals. With the RRSP, withdrawals made from the plan are fully taxable, but the expectation is that you will be older and therefore in a lower tax bracket. With the RESP and RDSP withdrawals made from the plan are only partly taxable. In the case of the RDSP, this means that the portion of the plan that is made up of contributions is non-taxable, but the portion of the plan which is grant and/or bond, and income is taxable. The important thing to remember in the case of the RDSP is that it will be taxed in the hands of the beneficiary, and therefore more likely to receive significantly lower taxation.

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