What is a Registered Disability Savings Plan (RDSP)? It’s a long term savings plan, created by the Canadian Government in 2008, designed to help Canadians with disabilities and their families save for the future. Canada is the first country in the world to initiate a program that helps people with disabilities save for their future. The Canadian government will pay a matching Canada Disability Savings grant of up to $3,500 a year based on contributions. The government will also pay a Canada Disability Savings bond of up to $1,000 a year into an RDSP for low and modest income Canadians. No contributions are necessary to receive a Canada Disability savings bond.
To qualify as the beneficiary of an RDSP a person with a disability must be under age 60, a Canadian resident with a social insurance number and be eligible for the Disability Tax Credit. To qualify for the disability tax credit an individual must have a” severe and prolonged physical or mental disability”. It’s a non-refundable tax credit that will reduce the amount of income tax a person with a disability or their related caregiver has to pay. For more information on the disability tax credit visit www.cra.gc.ca/disability.
What is the Canada Disability grant? It is a matching grant that the government will deposit into an RDSP. The government will provide up to 300% in matching grants depending on the amount deposited and the individual’s net family income up to a maximum grant of $3,500 each year, with a lifetime limit of $70,000. Grants will be paid into an RDSP until the year the beneficiary of the RDSP turns 49 years old.
For example if the beneficiary’s net family income is less than or equal to $83,088, for the first $500 deposited each year the government will deposit $3 for every $1 deposit. For the next $1,000 deposit the government will deposit $2 for every $1 deposit up to $1,500 a year; subject to beneficiary’s net family income. (Note the income amounts shown are for 2011, the amounts will be updated each year based on the rate of inflation). After age 18 the net family income is based on the individual’s net income and not their parents net family income.
What is the Canada Disability Savings Bond? It is money the government will deposit into an RDSP of low or modest income Canadians. RDSP beneficiaries who qualify for a bond will receive up to $1,000 a year, with a lifetime limit of $20,000. Bonds will be paid into an RDSP until the year the beneficiary turns 49 years old. No contributions are necessary to receive the bond.
For example, if the beneficiary’s net family income is less than $24,183 the government will deposit $1,000 each year into the RDSP. If the beneficiary’s net family income is between $24,183 and $41,544, a portion of the bond will be deposited each year and as the income increases the amount of the bond will decrease. (Note the income amounts shown are for 2011, the amounts will be updated each year based on the rate of inflation)
The proceeds from a deceased’s RRSP, RRIF and RPP can be rolled over into the RDSP of a financially dependent child or grandchild with a disability. Money from an RDSP can be withdrawn at any age; however withdrawals must begin at age 60. When money is withdrawn, grants and bonds must remain in an RDSP for at least 10 years. When money is withdrawn, all grants and bonds paid into the RDSP during the 10 years before must be repaid. The RDSP is a must plan for everyone that qualifies. Don’t miss out on this fantastic plan for people with disabilities. For more information visit www.disabilitysavings.gc.ca or call 1 800 622-6232
John Dowson Ex Director Life Trust Planning www.life-trust.com