Clients with Disabilities
At MBI Financial, we work closely with clients and their families when there is a long-term disability that qualifies for establishing a Registered Disability Savings Plan (RDSP). To be eligible, the client or family member must be a Canadian resident under the age of 60 with a valid social insurance number and are eligible or already receiving the Disability Tax Credit (DTC).
RDSPs are similar to Registered Education Savings Plans (RESP) in that contributions are not tax deductible, but the income grows tax free inside the plan until funds are withdrawn. Contributions are enhanced by a federal grant, Canadian Disability Savings Grant (CESG) that can provide up to $3,500 a year of direct assistance, depending on income, up to a lifetime limit of $70,000. For those that qualify based on income, the Canadian Disability Savings Bond (CDSB) can provide up to $1,000 a year additional assistance, up to a lifetime limit of $20,000 without any contributions. Once an RDSP is set up, anyone may contribute with permission from the plan holder, and CDSG and/or CDSB can be applied retroactive to the lesser of 10 years prior (up to 2008) or when the beneficiary became eligible for the DTC. Carry forwards are limited to unclaimed amounts of $10,500 for CDSG and $11,000 for CDSB per year. The CDSG and CDSB are available until the beneficiary turns 49, and must remain in the plan for at least 10 years to be retained. There are no annual contribution limits but the lifetime limit is $200,000 and the deadline for contributions each year is December 31st.
Parents and grandparents can also arrange for a tax free rollover of their Registered Retirements Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF) to the RDSP at their death.
There is no financial impact on federal benefits such as the Goods and Services Tax Credit, Old Age Security, Employment Insurance and the Canada Child Tax Benefit and very little impact on provincial social assistance payments.
6 STEPS TO ESTABLISHING A RDSP
Step 1
Social Insurance Number
To apply for your Social Insurance Number (SIN) simply gather all the required original proof of identity documents (ie. Birth Certificate/Certificate of Canadian Citizenship/Permanent Residence Card) and take them to your nearest Service Canada point of service.
If everything is in order, you will get your SIN during your visit. (they are only issuing paper copies, no more plastic cards, as of March 31, 2014)
Step 2
Disability Tax Credit
Needed in order to open a RDSP account.
Are you eligible – answer ‘yes’ to each of these questions:
1. Do you have a mental/physical disability that is expected to last, or has lasted, 1 year or more?
2. Are you blind and/or do you need extensive therapy or treatment and/or are you limited in activities that people need to do regularly? (ie. speaking, hearing, walking, using the bathroom, eating, getting dressed, remembering, banking, finding your way around, dealing with emergencies, etc.)
You complete Part A of the DTC Form (T2201)
Part B – Must be completed by a Qualified Practitioner (Family Doctor, Optometrist, Audiologist, Occupational Therapist, Physiotherapist, Psychologist or Speech-Language Pathologist).
Retain a copy of the completed and signed form and mail original to your assigned Canada Revenue Agency Tax Centre.
Step 3
File Your Income Tax Return
If you have never filed your taxes, or have missed a few years, you will need to file your taxes for the past 2 years, and continue to file your taxes every year.
This is how the government determines how much RDSP grant and bond you will receive.
If your child has reached the age of majority you will want them to file their own tax returns as their income will then be the basis of determining grant and bond amounts.
Step 4
Decide On Issuer And Holder
Issuer: BMO Global Asset Management and Mackenzie Financial offer RDSP eligible mutual funds*.
Holder: The person who will manage the plan, make decisions around investments and payment options.
If you have contractual competence and are over the age of majority you will be the Holder.
If the account is for a child, the parent(s) or legal guardian must be the Holder.
If an adult does not have contractual competence, their adult guardian or legal representative can open and manage the RDSP. This includes legal parent, guardian, tutor, curator, public department, agency or institution that is legally authorized to act for the beneficiary.
Step 5
Open Your Rdsp
Setup an appointment with our Mutual Fund Representative* and bring your social insurance number and a piece of valid photo ID.
You will complete a RDSP account application as well as a Government form to request to receive the grant and/or bond.
Beneficiaries must be 49 years or younger in order to qualify for the government grant and bond as there is a 10-year rule on withdrawal of money. This ensures that they may begin taking payments when they turn 60 without having grant and bond clawed back.
Step 6
Update Your Will
Your Will says what will happen to the money in your RDSP if you pass away, otherwise the government will pass out the money according to provincial law.
For parents/grandparents, your Will can direct your executor to contribute all or a portion of your estate to a child/grandchild’s RDSP so long as it does not exceed the maximum life contribution amount of $200,000. Otherwise a Henson Trust may be your next option.
We recommend talking to a lawyer that understands your situation.
