What are the Canadian Disability Savings Regulations or RDSP?

Disabilities are devastating for the sufferer and his or her loved ones. Most require substantial assistance from others to complete necessary tasks, such as eating, dressing, bathing, and getting around. Not only does this supplemental care take time, it also takes employment opportunities away from the family member providing the care, or money spent to bring in outside help. The Canadian government recognizes the financial strain disability places on a family due to the long-term support that will be needed. To help these families defray such costs, knowing that the parent or other responsible adult will not always be around to provide care, the government established the Canadian Registered Disability Savings Plan (RDSP) through the Canada Disability Savings Act. This program allows parents and other legal guardians to establish and fund savings plans that will create the long-term financial support disabled children need once the primary caregiver is gone. A discussion of the interplay between RSDPs and tax credits, a two-pronged approach to helping families with severely disabled children survive the financial stresses of this situation, will follow below.

Overview of a RSDP

As noted above, the purpose of a Registered Disability Savings Plan, regulated by the Canada Disability Savings Act, is to provide financial security for a disabled child or adult. As a preliminary matter, and the reason it will be explored in depth below, an individual must qualify to receive a Disability Tax Credit before a RDSP may be opened by a parent or other legal guardian, if the disabled individual is a minor or incompetent, or by the disabled individual, if he/she has reached the age of majority and is competent to enter into contracts. In either case, the disabled person is the beneficiary, and contributions to the Registered Disability Savings Plan may be made by anyone, with the written permission of the plan holder, which is typically the parents until the child becomes an adult, or the adult beneficiary.

Contributions up to $200,000 per year, though not tax-deductible, are permitted until the beneficiary reaches the age of 59, and importantly, the government will provide a matching percentage annually, in the form of a grant, according to the income level of the beneficiary’s family income and the amount contributed. The maximum amount the government will provide is $70,000, and eligibility terminates when the RSDP beneficiary reaches the age of 49. In addition, up to $1,000 in savings bonds will also be paid annually until age 49 for low- and modest- income families, with a lifetime benefit of $20,000. Withdrawals from the plan must start by age 60, and any government contributions provided in the 10 years preceding the first withdrawal must be repaid (minus exceptions for someone with a shortened lifespan). As a measure designed to provide supplemental support, any contributions withdrawn from an RSDP do not count as taxable income, but associated government grants, bonds, and investment income are taxable when paid out of an RSDP.

Disability Tax Credit

As the name implies, a disability tax credit is used to reduce the amount of taxable income a taxpayer is liable to cover. To qualify for this benefit, the Canada Revenue Agency must recognize and approve of the existence of a prolonged and severe disability. This credit may be used, with some limitations, by parents of minor children or with other dependents that do not earn taxable income. Note that supporting documentation from a medical doctor showing the existence of a disability will be necessary as part of the application process. Further, an additional supplement is provided to families with disabled minor children, $4,733 for 2017, with the standard disability credit being $8,113. Importantly, if a person qualified to take the tax credit, but failed to do so, the credit may be applied retroactively up to the past 10 years.

Speak with a Disability Lawyer

Shouldering the financial strain of a disabled family member without outside support is often impossible. Government programs do exist to support families in these circumstances, but gaining access can be tricky. Disability lawyers bring a firm understanding of the requirements and regulations of these programs, and can assist families with obtaining the help they need to provide the best possible care.