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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.

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.

Now that the RDSP is a reality and financial institutions are beginning to offer it for sale a major challenge is beginning to surface.

Parents are encountering an impediment to opening an RDSP for their adult sons and daughters.  The legislation states the beneficiary of an RDSP can be opened by an individual with legal capacity or the adult’s legal representative. 

Most of us are not legal guardians of our adult sons and daughters nor do we want to be.  Becoming guardian is a costly, intrusive and cumbersome process.  BC has Representation Agreements, but this tool is not available in other provinces.

PLAN is working with the Federal Government, financial institutions, provincial Public Guardian Offices and leading disability groups to remedy this situation.

We are seeking a way for parents to be Account holders of the RDSP jointly with their relative with a disability without having to become legal guardian.

Please stay tuned to this blog or sign up for our regular RDSP bulletin at http://www.rdsp.com .

Reminder: if you are new to this blog and want a detailed description of the RDSP please click on the header under “RDSP FactSheet” or refer to the September post entitled “Review of the Registered Disability Savings Plan”.

One of the most frequent questions I get asked when speaking with families about the RDSP is “what is this ten year rule around withdrawals”.  Many of you have probably come across this particular characteristic of the plan and wondered exactly what it means for your longterm strategy when creating a plan for the RDSP.  This Ten Year Rule seems to be a provision within the plan which has the most amount of confusion surrounding it.

First, I will just mention that although the Ten Year Rule does mean there a certain restrictions to withdrawing (if you have received any Grant and Bond), the benefits of setting up a plan are far greater and the Ten Year Rule should be considered when planning for your future, but should not deter you from setting up a plan.

Second, if you set up an RDSP and decide you DO NOT want to receive the Canada Disability Savings Grant and the Canada Disability Savings Bond, the Ten Year Rule does NOT apply to you.  If you only receive family and friends contributions into the plan you will have no restrictions as to when you may withdraw from the plan.

So, what exaclty is this Ten Year Rule?

If you have received any Grant and Bond from the Government you will have to wait ten years after the last Grant and Bond is received before you withdraw from the plan.  If you decide to withdraw before this ten year waiting period is over, you will receive a penalty.  This penalty is, any Grant and Bond received within the last ten years of a withdrawal will have to be paid back to the Federal Government.  An easier way of understanding this is: “if you withdraw from the plan, look back ten years from the date of withdrawal and if there is any Grant and Bond received within those ten years it will have to be paid back to Government.”  This will not include the interest from the Grant and Bond or family and friends contributions, only the Grant and Bonds themselves.  Once a Grant and Bond has been in your plan for ten years, it then becomes the asset of the beneficiary and will not be taken back.

For example, if John sets up a plan at the age of 20 and contributes and receives the Grant and Bond for 20 years, he will have to wait until he is 50 before he begins withdrawing from the plan (without penalty).  If, for example, he decided he wanted to make a withdrawal at the age of 40 (having received the Grant and Bond between the ages of 20 and 40 years of age), he would have to pay back any Grant and Bond received between the ages of 30 and 40).

Can you specify which portion of the plan you withdraw from?

Unlike the Registered Education Savings Plan, you cannot specify which portion of the plan you are withdrawing from the RDSP.  Every dollar coming out of the RDSP is considered to be made of 3 parts: 1) Family and Friend Contributions, 2) Government Contributions (Grant and Bond), and 3) Interest.  

Why put in the Ten Year Rule?

The Ten Year Rule was put in place by the Federal Government to ensure two things: a) that the plan remained a longterm savings plan, and b) that there would not be any “tax slippage”.  

The Federal Government will most likely be reviewing this characterictic of the plan when they conduct their 3 year review of the RDSP, as many families have brought it forth as an issue.

The RDSP Calculator (click here) does take the Ten Year Rule into account when processing your individual situation, so make sure to run a few different scenarios on the RDSP Calculator.

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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