GENERAL QUESTIONS:
ELIGIBILITY QUESTIONS:
CONTRIBUTION QUESTIONS:
TRANSFER / WITHDRAWAL QUESTIONS:
GRANT / BOND QUESTIONS:
MISCELLANEOUS QUESTIONS:
ANSWERS TO GENERAL QUESTIONS:
Q. What is a Registered Disability Savings Plan (RDSP)?
A. An RDSP is a new savings program created by the Federal Government to encourage and assist Canadians with disabilities and their families to save for long-term financial needs in a tax deferred environment.
Q. Who can open an RDSP?
A. You can open an RDSP if you are:
- A person with a disability eligible for the Disability Tax Credit, who is of the age of majority and has the legal capacity to manage his or her finances; or
- The parent of a dependent with a disability who has not attained the age of majority; or
- A guardian or other representative who is legally authorized to act on behalf of a person with a disability.
Q. How do I open an RDSP?
A. Book an appointment with an RBC Advisor at your local branch by calling 1-800-463-3863. An RBC advisor can help you integrate the RDSP into a long-term plan for the well-being of you and your family.
Q. What investment options are available for RDSPs?
A. Range of investment options:
- RBC Funds;
- RBC GICs (Non-Redeemable, Canadian Market-Linked, Global Market-Linked); and
- RBC Savings Deposits.
Q. What is the difference between an RDSP and an RESP?
A. An RDSP is a long-term savings plan to provide for the financial security of a person with a disability, for the most part during their later years when their parents may not be there to care for them. An RESP is a mid-term savings plan to provide for the costs of post-secondary education or vocational training. Both plans provide for tax-deferred investment, and have been designed to receive government assistance to help meet these objectives.
Q. What is the Canada Disability Savings Grant (CDSG)?
A. The CDSG is a federal government grant that provides matching contributions of 100%, 200% or 300% up to $3,500 annually, based on a family’s net income. There is a lifetime limit of $70,000.
Q. What is the Canada Disability Savings Bond (CDSB)?
A. The CDSB from the federal government is paid on an annual basis into the RDSPs of low-income families, based on net family income. No contributions are required to be eligible for the CDSB, which was created to assist families who may not have the resources to make a contribution. A tax-return must be filed to be eligible for the CDSB. The maximum annual CDSB payment is $1,000, and the lifetime maximum is $20,000.
ANSWERS TO ELIGIBILITY QUESTIONS:
Q. Who is permitted to be the beneficiary of an RDSP?
A. The beneficiary of an RDSP must meet the following criteria:
- Be a resident of Canada at the time the plan is established and when each contribution is made. If they cease to be a resident of Canada, the plan can continue to exist but no further contributions can be made.
- Have a valid social insurance number (SIN)
- Be under the age of 60 at the time contributions are made (specifically, have not attained 59 years of age in the previous calendar year).
- Be eligible for the Disability Tax Credit (DTC). A person is DTC-eligible in a tax year if they have a severe and prolonged physical or mental impairment, and are entitled to a credit under section 118.3 of the Income Tax Act. To be entitled to the credit, Form T2201, Disability Tax Credit Certificate, must have been completed by a qualified medical practitioner and submitted to the Canada Revenue Agency (CRA) for approval. For more information on the disability tax credit, refer to the CRA website on the topic of Persons with disabilities.
Q. Can the beneficiary and the plan holder be the same person?
A. Yes. The person with a disability can be the beneficiary and plan holder provided they have reached the age of majority in the province or territory where they reside and have the legal capacity to manage their finances.
Q. Can grandparents, other family members or friends open an RDSP?
A. A grandparent, another family member or a friend can open an RDSP for an individual with a disability only if he or she has been legally appointed as a guardian of the beneficiary or is otherwise legally authorized to act for the beneficiary.
Q. Can the plan holder be a parent even if the beneficiary is over the age of majority?
A. Yes, but only if the parent has been legally appointed as a guardian of the beneficiary or is otherwise legally authorized to act for the beneficiary. If a parent opens an RDSP when their child is a minor, the parent can remain as plan holder when the child subsequently attains the age of majority.
Q. Is there a minimum age for a beneficiary to qualify for an RDSP? Or is it simply the Disability Tax Credit that governs eligibility?
A. There is no minimum age to be eligible for an RDSP. The beneficiary must be a Canadian resident, have a Social Insurance Number (SIN) and be eligible for the Disability Tax Credit.
Q. Who can be plan holder for a qualifying "adult” beneficiary with reduced mental capacity?
A. The beneficiary must have the legal capacity to manage their finances, otherwise the plan holder must be legally appointed as guardian of the beneficiary or otherwise legally authorized to act for the beneficiary.
ANSWERS TO CONTRIBUTION QUESTIONS:
Q. Is there an annual contribution limit or can the full amount be contributed in one year?
A. The lifetime contribution limit is $200,000. You have the ability to contribute the full $200,000 in one year, but doing so might forfeit the ability to maximize on the Canada Disability Savings Grant which is provided on a “matched” basis to a maximum annual limit. As well, the contribution is irrevocable and the contributor or plan holder cannot stipulate what happens to any funds remaining in the RDSP after the beneficiary dies. Funds remaining are paid to the beneficiary’s estate, which can be problematic if the beneficiary lacks capacity or otherwise is not able or does not make a Will. The Canada Disability Savings Bond is provided by the Government strictly on the basis of income and the existence of an RDSP, and is not affected by annual contributions.
Q. If a contribution is being made (with written consent) by a person other than the plan holder, can the RDSP-Matic™ payment be debited from the contributor’s account directly?
A. No, in the case of a contribution by a person other than a plan holder, only a lump sum contribution may be processed. If an RDSP-Matic is established to make regular contributions, only the plan holder’s own account can be debited.
Q. If parents had previously opened an RESP for a child and then later discovered the child was disabled, are they able to transfer the assets in kind from the RESP to the RDSP?
A. No. There is no special provision in the Income Tax Act to move money from an RESP to an RDSP. The usual treatment applies to any withdrawal from an RESP, including return to the government of applicable RESP related grants and bonds. Another option might be to appoint a new beneficiary to the RESP if it appeared that the first beneficiary would be unable to receive an educational assistance payment.
Q. Can investments be moved in-kind from an Investment Account to an RDSP?
A. Yes, an in-kind transfer of mutual funds from a non-registered Investment Account to an RDSP is possible but would be considered a deemed disposition for tax purposes (a sale from the Investment Account and purchase in the RDSP) which could have tax consequences. Any capital losses would not be allowed to be claimed against capital gains, so it might be better to sell investments in a loss position, transfer cash, and re-invest in other securities at least for the 30-day period required for superficial loss purposes. You may want to consult with a tax accountant.
Q. Will a client be able to transfer a non-registered GIC “in-kind” to the new RDSP in order to preserve the existing interest rate on the GIC?
A. It is not possible to purchase an RBC GIC in a non-registered account and then break it to transfer into a registered account such as an RDSP.
ANSWERS TO TRANSFER / WITHDRAWAL QUESTIONS:
Q. Will clients be able to transfer their RDSP from one institution to another?
A. A beneficiary can have only one RDSP at any given time. While transfers from a beneficiary’s RDSP to another RDSP for the same beneficiary are allowed, RBC will not be able to accommodate these requests until later in 2009. Further details around transfers will be shared as they develop.
Q. Are RDSP contributions taxable when they are withdrawn? What is taxable?
A. Contributions to the plan that are withdrawn are not included in the income of the beneficiary. The Canada Disability Savings Grant, Canada Disability Savings Bond and the investment earnings in the plan are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP. Each withdrawal is a blend of taxable and non-taxable amounts.
ANSWERS TO GRANT / BOND QUESTIONS:
Q. What is the deadline for annual grants and bonds?
A. The annual deadline is December 31 for grant and bond consideration.
Q. Can you recover/carry forward previously unused grant/bond money, as you can with an RESP?
A. Canada Disability Savings Grant monies are paid to the RDSP depending on the contributions made to the plan in any given year. There is no provision for making contributions for previous years that were missed. Similarly, Canada Disability Savings Bond amounts cannot be applied for retroactively.
Q. What is the difference between the Grant and Bond payments that the government may provide?
A. The Canada Disability Savings Grant (CDSG) is an annual supplement that the Government contributes to an RDSP. Personal contributions attract government matching, and family income determines the rate at which contributions are matched. Depending on the beneficiary’s net family income and contribution level, the Government may grant up to $3 for every $1 in contributions received by an RDSP in a year, to a maximum CDSG of $3,500. The lifetime grant limit is $70,000. A CDSG can be paid into an RDSP on a contribution made to the beneficiary’s RDSP up until December 31 of the year the beneficiary turns 49 years old.
The Canada Disability Savings Bond (CDSB) is paid annually by the Government to RDSPs of low-income families strictly on the basis of income and is not affected by annual contributions. The maximum annual amount is $1,000. The lifetime bond limit is $20,000. A CDSB can be paid up until December 31 of the year the beneficiary turns 49 years old.
For illustrations, please refer to the charts on the RDSP website.
Q. Is it correct that if the beneficiary is over age 49, they will not receive grant or bond monies?
A. This is correct. Only contributions made before the end of the year in which the beneficiary turns age 49 will be eligible for matching Canada Disability Savings Grant amounts. Similarly, Canada Disability Savings Bond monies will not be available to eligible RDSP beneficiaries after this date.
Q. How much Canada Disability Savings Grant would a beneficiary receive if the plan holder contributed the lifetime maximum of $200,000 at one time?
A. The $200,000 contribution would only be eligible for one annual CDSG amount. The CDSG might be maximized by holding back an amount sufficient to make annual contributions of $1,000 or $1,500 (depending on family income level) over a number of years.
Q. If the maximum lifetime limit of $200,000 is contributed right away, is the CDSG paid annually by the government calculated on the family income in future years?
A. No. This one-time contribution will only attract Canada Disability Savings Grant amounts in the year it is made. Matching grant amounts are only received on an annual basis up to an annual maximum and lifetime maximum, determined in the year a contribution is made to the RDSP if the beneficiary’s age qualifies. They will not be received in future years for a contribution made in the past.
Q. When calculating family income, what amount should be used?
A. Family net income is based on the income of the parents until the year the beneficiary reaches age 18, and on the income of the beneficiary (and their spouse) beginning the year the beneficiary reaches age 19. A filed tax return is required in order to establish family income. Line 236 of the Federal T1 Tax Return is used to calculate family income.
Family income from 2 years prior is normally used for assessing a potential grant or bond. For example, 2007 family income is used for evaluating 2009 grants and bonds. This means that beneficiaries will have to go back and file tax returns beginning the year they reach age 17 if they wish to receive the maximum grant and bond in the year they reach age 19.
ANSWERS TO MISCELLANEOUS QUESTIONS:
Q. Does the RDSP have CDIC (Canada Deposit Insurance Corporation) coverage?
A. The RDSP is eligible for CDIC coverage on any savings or GICs held within the plan, subject to the usual requirements. For further information on eligible accounts and coverage, please refer to CDIC’s Website.
Q. Does an RDSP permit more than one plan holder?
A. While the RDSP program does allow for more than one plan holder, RBC’s RDSP does not permit more than one plan holder.
Q. If a plan is opened by a parent for a minor who is able to handle their own affairs when they turn legal age, does the plan transfer into their name completely (i.e. the original plan holder's name is removed) at that time?
A. No, not automatically. In this situation the parent could remain as the plan holder or, if the parent so chooses, the adult beneficiary who has the legal capacity to manage their finances could replace the parent as the plan holder upon completion of the appropriate documents.
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