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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.

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Once again, I will try and do the impossible and explain the types of payments you can take out of an RDSP in a clear and understandable way.  For any of you who have been visiting this blog often and following the progression of the RDSP, you know that this is not an easy task.  The terminology and formula’s associated with payments from an RDSP often create confusion amongst people trying to learn about the plan.

So, wish me luck.

In this post I will refrain from using the official terminology of Disability Assistance Payments (DAPs) and Lifetime Disability Assistance Payments (LDAPs), and instead break down the different types of payments into 5 categories or scenarios.  I will define what I mean by the “10 year rule” for those of you who are unfamiliar.

Definitions

10 year rule = if you receive any payments from the federal government in the form of the grant or bond, you will need to wait at least 10 years after the last grant or bond has been received before you start withdrawing from the plan.  If you decide to withdraw before this ten year waiting period is up, you will have to pay back any grant or bond that has been received in the last ten years (not including interest).

Payment formula = some payments out of the RDSP must come out as determined by a formula.  This formula (simplified) is “Total Amount in the plan” / divided by “Years expected to live”.  ** Note that this is not the full formula, just a simplified version for clarity.

The Five Ways You Can Receive Payments:

1) No Federal Contributions: If someone opens up an RDSP and only contributes their own money into the plan (or the money contributed by friends and family) there are no restrictions on when you can withdraw from the plan or how much.  Once you turn 60 years of age, minimum annual payments will need to start coming out of the plan, but you are still allowed to take out as much as you want, whenever you want.  In this scenario you do not have to worry about the assistance holdback amount (or as we call it, the ten year rule).

Example – David decides that he will only put in his own money and deposits $15,000 at the age of 52.  David could withdraw payment from the RDSP at any time and in any amount.  At the age of 60, formula payments would begin coming out of the RDSP, but David could still take out larger amounts.

2) Annuity: If you would like to have even payments paid out over your lifetime, there is a provision in the legislation to allow for annuity payment.  An annuity is where you make a lump sum payment to a financial institution who then pays you income for the rest of your life.  In this case, you must still be conscious of the 10 year rule.

Example – Sarah’s family opened up an RDSP for her when she was 10 years old and contributed $1,500 every year.  Once Sarah turned 40, she wanted to receive the same amount in payments every year and took out an annuity from a life insurance company that pays her $7,000 a year.

3) More Personal Contributions than Federal Contributions: If you (and friends and family) have put in more contributions into your RDSP than the federal government, you are allowed to take out lump sum payments above and beyond the formula.  These lump sum payments will not start an annual payment and can be received before the age of 60.  Once you reach the age of 60, minimum payments as determined by the formula above will begin to come out annually, although you can still take out lump sums larger than the amount determined by the formula.  You will still need to take into account the 10 year rule for these payments.

Example – Katy and her friends were able to contribute $100,000 over 30 years by the time she was 45 and received $70,000 in federal Grant.  Katy decides at 45 that she wants to take out $30,000 towards a down payment on an apartment.  She withdraws the payment without causing an annual payment to occur.

4) Less Personal Contributions than Federal Contributions: If you have contributed less than the federal government into your RDSP, you can never take out payments that exceed the amount determined by the formula.  With this type of payment you must always take into account the 10 year rule.  Within this scenario there are three options:

  • You wait until 60, at which point payments determined by the formula are paid out each year.
  • You decide you want to start receiving payments before the age of 60, and you start the annual payments early.  Ex. John decides at 55 he wants to start receiving annual payments determined by the formula, and thus instigates these payments.
  • You decide you want to receive a one-time payment that will not instigate annual payments (between the ages of 27 and 58).  Because you have contributed less than the federal government, you can take out a one-time payment but it cannot exceed the amount determined by the formula.

Example – Since he turned 19, Tim has only ever received the $20,000 in Federal Government Bond.  Tim decides at the age of 56 that he wants to start receiving payments from his RDSP.  At this point, payments as determined by the formula begin to come out every year.

5) Shortened Life Expectancy: If the person has a shortened life expectancy (within 5 years) the formual does not apply and they can take out payments of any size.  ** Must still adhere to the 10 year rule.

Example – Connie had an RDSP set up for her when she was 10 years old, and her parents have deposited $1,500 into her account every year for 10 years allowing her to get $35,000 in Grants.  At 30 years old, Connie finds out she has less than 5 years to live.  Her doctor certifies this diagnosis for the Canadian Revenue Agency, and Connie starts taking out payments of any size from the plan.

Important – It is up to the financial institutions as to whether they will allow lump sum payments (other than the formula payments) to come out of the plan.  It is important that you speak with your financial institution and make sure they allow you to take out these types of payments if this is how you want to use the RDSP.

The end.

Please let me know if this explanation is clear and understantable.  If it is not, I will keep trying until it is.  Thank you again to everyone for all your feedback.  I hope this has been helpful.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.

For those of you who have been following along, this has been one of the most discussed issues since the RDSP was first launched in December of 2008.  The availability of the RDSP across Canada has brought into focus the absence of comprehensive supported decision-making vehicles in the Canadian provinces, other than BC (Representation Agreement).  Below you will see an excerpt from our June ActionPLAN which details the policy reforms we are looking into that may provide solutions to the guardianship issue.  To see a copy of our full ActionPLAN click here.

Excerpt from PLAN`s June edition of ActionPLAN – Jack Styan

The Issue

The RDSP has highlighted the limitations of our current legal system, which regulates decision-making for vulnerable adults.  Aside from BC, families who wish to assist an adult family member to open an RDSP are limited to adult guardianship.  Most people who are not able to manage their own RDSP would also be precluded from assigning a Power of Attorney.  Jurisdictional issues between the federal and provincial governments are an added complication.

Most families and people with disabilities that we have spoken with find adult guardianship lacking on one or more counts, including:

  • Cost;
  • Loss of legal status;
  • Indignity of being deemed “incapable”.

We have been working with the Federal Government, financial institutions, and other disability organizations to find a suitable solution.  It’s a complicated issue to try and solve because of the many considerations involved.

A solution needs to include the following principles:

  1. Where people are able to manage their RDSPs, they should be entitled to manage their own affairs
  2. Where people are not able, the best people to act as account holders are people who they trust, who know them well and who are actively involved in their lives
  3. When it is necessary to grant authority to manage their RDSPs to another, the powers granted should be as targeted as possible
  4. People should remain involved in any decision-making process to the extent that they are able
  5. There needs to be a simple method of naming alternates or reassigning authority
  6. Any mechanism should be easily implemented and administered.

Solutions:

Reforming guardianship laws across the country would be the best and most far reaching solution as the positive impact of the reforms would be more far- reaching than measures that affect just the RDSP. This, however, is a long term solution and we want an immediate solution that will give people immediate access to the RDSP.  The most promising solutions include:

1. Interpretation of “Legal Representative” by Canada Revenue Agency to include de facto guardian or next-of-kin.   An interpretation which broadens the understanding of “legal representative” beyond  powers of attorney and traditional adult guardianship (tutor, curator, trustee, committee, etc.), would enable a broader group of people to act on people’s behalf immediately.

2.  Creating a new federal process that allows people to assign someone to act as the “trustee” of their RDSP, without a test for contractual competence, would enable transfer of responsibility for managing an RDSP without requiring guardianship.

There are several situations where a trustee of benefits can be appointed in a relatively informal and streamlined process.  The processes protect people’s assets by assigning fiduciary responsibility.

Actions:

Look for more ongoing information on our blog on www.rdsp.com and add your thoughts and comments.

Raise your concern with both federal and provincial representatives when the opportunity arises.  The concern about adult guardianship as an inappropriate method with which to assist people to handle their financial, personal or health care decisions is not well understood.  We need people to know that it is a problem.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com

Now that the Registered Disability Savings Plan has been available for almost half a year, it would be interesting to hear what type of experience people have had:

  • Accessing information about the RDSP
  • Trying to get the Disability Tax Credit
  • Figuring out who can manage the plan
  • Applying through the financial institutions
  • Setting up the plan
  • Contributing to the plan
  • Telling others about the plan

Over the past few months I have heard some really interesting stories about people setting up RDSPs, or trying to set up RDSPs.  Some of these stories have been wonderful and uplifting, while others have been frustrating.  As the first plan of its kind in the world, there are still many things that need to be done in order to ensure everyone who can benefit from the plan is able too.

With the limited amount of information currently available for someone looking to set up an RDSP, and much confusion as to how the plan actually works, telling your story may really help someone who is in the same situation you are.  

If you have a spare moment in your day, post a story here about your experience with the RDSP.  By doing this you can help us understand how the plan is working for people, and what are the key issues that need to be addressed.

To start off, I will tell a story about a friend of mine who wants to set up an RDSP.  

Beth (not her real name) had been planning to set up an RDSP on December 1st, 2008, the first day the RDSP became available.  I had run through the plan with her and explained how she might be able to benefit from it, and Beth was clearly looking forward to “cashing in” (her words) on this opportunity.  She came on to my RDSP telephone seminar a few times and got to know the plan so well that a few times I had to go back to my notes in order to give her an answer to her questions.

Unfortunately for Beth, her eligibility for the Disability Tax Credit was in question.  Beth had been seeing the same doctor she had since she was young, until she moved, at which point she had to find a new doctor.  As a result, her new doctor was not aware of her history as well as her old one.  This meant filling out the Disability Tax Credit was quite the ordeal for her.  We had to go back several times and explain to her new doctor why she was eligible.

Eventually, we were able to get everything filled out and sent off to CRA, but we are still unsure of her status and whether she will receive it.  From a lot of the e-mails I get, I hear that others have had this problem as well.  I’m hoping that Beth gets the credit, as she could receive it retroactive for the last few years, which would hopefully give her some money towards her RDSP.

For those of you wanting to capitalize on the 2008 Federal contributions into a Registered Disability Savings Plan, today is the last day to get your plan set up and contribute for the 2008 year, leveraging up to $4,500 into your plan.

As most of you will know, the Federal Government extended the deadline (originally December 31st, 2008) until March 2, 2009 (today) for people to set up an RDSP and contribute, and receive the 2008 federal government contribution.  The federal government contribution is available through two mechanisms; the Canada Disability Savings Grant (CDSG), and the Canada Disability Savings Bond (CDSB).

The Canada Disability Savings Bond was created to encourage people to set up a plan, and does not require any contributions in order to receive the money into your plan.  As long as your income is below $21,287, and you have set up an RDSP, you will receive $1,000 into your plan every year, for up to $20,000.  If you have an income between $21,287 and $37,885, you can still receive a portion of the bond.

Again, no contributions necessary to receive the Bond.

The other way to receive more federal money into your plan is to have personal contributions from yourself, family or friends put into the plan.  By contributing money into your plan, you will also be eligible for the Canada Disability Savings Grant for up to $3,500 a year ($70,000 lifetime maximum).  Remember, you can receive both the Grant and Bond.

The amount of Grant you receive is, like the Bond, based on your income.  If you have an income equal to or below $75,769, you can receive $3 for every$1 you put into the plan for the first $500.  For the next $1000 you put into the plan, you will receive $2 for every $1.  This means that if you contribute at least $1,500 into your plan, you can receive up to $3,500 in Grant.

For those who have an income above $75,769, you can still receive $1 for every $1 you put in (for up to $1,000 annually).

If you want to capitalize on these 2008 government contributions (up to $4,500 for only $1,500 of your personal contributions), you will need to open up your RDSP today and, if you are planning to get the Grant for 2008, contribute whatever you can into your plan.  By putting in at least $1,500, you will maximize the amount you can receive from the federal government.

For people who are eligible for the full Grant and Bond, $1,500 of your money =$6,000 into the plan.

To find out about the RDSP, whether you qualify, and where you can sign up, visit www.rdsp.com .

Now that it looks like the Bank of Montreal will become the first national bank in Canada to offer the RDSP, and will most likely start offering RDSPs on December 22nd, many people are wondering whether their is any opportunity to receive the Grant and Bond retroactively (until June 2009).  With the shortened time period (December 22nd to December 31st) to get your RDSP set up and your contributions in for 2008 (to leverage the 2008 Grant and Bond), this idea of the retroactive 2008 Grant and Bond has been proposed by a number of people interested in the RDSP.  

So what is the likelihood?

From what we have heard, the likelihood is not that great (although, you never know).  With the limited number of Financial Institutions offering the plan, and the desire of many people not to miss out on the 2008 Grant and Bond, it seems to make sense.  Where it starts to get tricky is when we start to look at exactly what would need to happen in order for this type of change to occur.  Allowing for a retroactive Grant and Bond would require a change in Regulations, which is not a quick or easy process and would require either pass through Cabinet or Ministerial amendment.  Financial Institutions would also have to modify some of their systems to account for this change in policy.  This is not to say that it won’t happen, but that it may be a longshot.

There have been some efforts to push for this retroactive Grant and Bond, and there still seems to be a little steam behind these initiatives, but for the time being you should assume that this retroactivity will not be available.  We will make sure to track this discussion and update everyone as soon as we find out anything.

If you want more information on how to set up an RDSP with BMO you can call their BMO Investment Centre at 1-800-665-7700.

What are the different parties saying around the issue of disability during the current federal election campaign?  Here’s a brief overview:

Liberal Party

“Among the most sacred of Canadian values is this core belief: the true measure of a country is the way it treats its most vulnerable.  Our platform includes:  making the Disability Tax Credit refundable, ensuring that low-income individuals who are disabled are able to directly benefit from this tax credit.  Changing the CPP disability requirements to ensure that those with episodic illnesses – such as Multiple-sclerosis and some mental illnesses – do not jeopardize their ability to collect CPP or QPP disability benefits if they work when they are able to.”

To read more visit: http://www.liberal.ca/pdf/platform/2008lp_fairer_e.pdf

New Democratic Party

“On December 13 2006, after four years of negotiations, and with the international participation of civil society and NGOs, the United Nations General Assembly adopted the first international covenant on the rights and dignity of people with disabilities. This covenant fills an important gap in international law, by providing universal legally binding standards which create a global framework for inclusion.

Congratulations to the Canadians with disabilities and to Canadian Disabilities groups who have played a leading role in the drafting of this new international covenant on the rights and dignity of people with disabilities! The Convention shall enter into force in March 2007, once twenty countries have ratified it.

Each country which ratifies the Convention accepts its legal obligations under the treaty and must adopt implementing legislation, and report regularly on its progress.  We all know that the government of Canada should be the first government to officially endorse the Convention.”

To read more visit: http://www.ndp.ca/page/4702

The Green Party

“The Green Party of Canada believes that it is time to treat Canadians with disabilities with dignity. We endorse the Basic Income Programme proposed by the Caledon Institute, which asserts, when all factors are taken into account, will actually save the government money. We urge the adoption of this income security programme for people with disabilities as soon as possible as an interim measure to a full poverty eradication federal-provincial program is established to provide for income security for all Canadians.”  

To read more visit: http://www.greenparty.ca/en/policy/visiongreen/partfour#_Toc180047640

Conservative Party

“Today, Prime Minister Stephen Harper announced that a re-elected Conservative Government will introduce important financial changes to benefit families that care for family members with disabilities.  We will:

Allow families to split their income between spouses to reduce their taxes in situations where one spouse is not working full-time in order to care for one or more family members with disabilities – whether children or adults.

Improve the Registered Disability Savings Program by making it easier for a person with disabilities to access money that has been transferred from the unused retirement savings of a deceased family member”.

To read more visit: http://www.conservative.ca/EN/1091/105904

As a family member, I welcome Prime Minister Harper’s two election announcements today:

1) To allow the proceeds of RRSPs or RRIFs to be rolled over to the RDSP of a son, daughter or grandchild with a disability, 2) To allow income splitting for families where one spouse is not working full-time as a result of caring for a family member with disabilities. 

More details are available at the following link:  Announcement Details

Both of these initiatives will assist families that have relatives with disabilities.  The RRSP rollover provides another option for families in making sure our relatives are financially secure after our deaths.  As a strong advocate for the RDSP, PLAN is pleased with this proposal.  It will make the RDSP more useful for more families because for many of us, our RRSPs are our largest assets, next to our homes.

I know many families where one of the parents does not work because they must care for a relative.  In some families the working parent even has to work at more than one job.  This will make it a lot easier for them to make ends meet. In today’s world it can be difficult for a family to manage on one income.

I trust this is the start of a discussion among all political parties on how to assist Canadian families.  We are the backbone of supports for our children, dependent sons and daughters and, ever-more frequently, our parents.

Susan Whittaker

Chair, PLAN

** “PLAN is a registered charity, and as such is prohibited from engaging in partisan political activity, which is defined by the Canada Revenue Agency as activity “that involves direct or indirect support of, or opposition to, any political party or candidate for public office.” PLAN has for some time supported the policy changes referred to above, and hope that they are implemented by government, but PLAN does not support or endorse any political party or candidate for public office.”

 

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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