Registered Disability Savings Plans (RDSPs) have been available to Canadian residents since 2008, but they are still not well understood and are often underutilized. In many cases this is a missed opportunity for persons living with disabilities and their families, because Canadian government funding is available to them, regardless of whether they contribute to the plan or not.
When the plans were first introduced, the assets and income they represented could inhibit one’s eligibility for provincial disability benefits. However, at this point in time most provinces and territories exempt RDSP assets and income from their eligibility tests and clawback calculations for disability benefits. The current exceptions are Quebec, New Brunswick, and Prince Edward Island, where caution must be exercised to consider the potential impact on your existing provincial benefits.
In order to open an RDSP, the beneficiary must be a Canadian resident with a Social Insurance Number, under 60 years of age in the year the plan is opened. They also must have been declared eligible for, and have applied for, the disability tax credit (DTC). The plan holder for a beneficiary under the age of majority (which is either age 18 or 19, depending on the province) would be the beneficiary’s parent, or guardian who is legally authorized to act on their behalf. That is also the case if the beneficiary is an adult but is not contractually competent. Specific rules apply if competency is in doubt. However, if the beneficiary is an adult and mentally competent to manage the account, they must be the plan holder.
An individual beneficiary can only have one RDSP, but anyone who wishes to do so can contribute to that plan with the consent of the plan holder. Contributions can be made until the end of the year the beneficiary turns 59 and cannot exceed $200,000 in total. The plan holder may wish to be strategic about the timing of contributions, to maximize government benefits, which are described below. If there are funds available to contribute, there is income-tested matching government funding. However, even if there are no funds available to contribute to the RDSP, there is still income-tested government funding that may be received.
There are two types of government funding: Canada Disability Savings Bond (CDSB) payments and Canada Disability Savings Grant (CDSG) payments. For adult beneficiaries, government contributions are based on the net income of the beneficiary (and their spouse, if applicable) but not the beneficiary’s parents, even if the beneficiary resides with their parents. This income information will be substantiated from personal income tax returns, so filing Canadian tax returns is a requirement. Government funding is determined using the tax return information from two years prior; for instance, 2021 tax returns for 2023 government funding. For beneficiaries who are minor children, government funding is based on the income of the parents.
The Government of Canada will make annual Canada Disability Savings Bond (CDSB) payments, depending on income, even if no personal contributions are made to the plan. These payments can total as much as $20,000 over the lifetime of the beneficiary. The maximum payment is $1,000 per year. CDSBs are payable for 20 years, but no later than the end of the year the beneficiary turns 49. Up to 10 years of carry-forward contributions are available for prior years when the beneficiary was eligible.
If net income from 2021 was below $34,863, then in 2023, $1,000 would have been paid as a CDSB. A partial amount would have been paid for income above this threshold but below $53,359, with no CDSB payable in 2023 if 2021 income exceeded this higher amount. These thresholds are annually adjusted for inflation.
The government will also make Canada Disability Savings Grant (CDSG) payments, and the amount depends on the non-government contributions made. These payments can total as much as $70,000 over the lifetime of the beneficiary. The maximum payment is $3,500 per year for 20 years. Eligibility for CDSG payments, like CDSB payments, ends the year the beneficiary turns 49. As with CDSB payments, there is also a 10 year carry-forward, but the maximum that will be paid in any single year is $10,500.
If net income from 2021 was below $106,717, then in 2023, the CDSG entitlement is 300% of the first $500 contributed and 200% of the next $1,000 contributed in 2023. This implies that a contribution of $1,500 would result in a CDSG payment of $3,500. However, when net income is above the $106,717 threshold, the CDSG entitlement is only 100% of the first $1,000 contributed, so that would result in a maximum CDSG payment of $1,000.
The funds contributed personally and by the government grow tax-free inside the RDSP. This is similar to how RRSPs and RESPs work, and RDSP funds can be invested like the family’s other Cardinal Point accounts. RDSP plans are designed to provide an annual income stream to the beneficiary starting at age 60. Specific rules apply, such that RDSP income amounts and timing are more restrictive than other registered plans like RRSPs or RESPs. With the exception of the withdrawal of non-government contributions, funds are taxed upon withdrawal. Penalties will apply if funds are withdrawn within 10 years of the last government contributions (which cease no later than age 49), unless the rules around shortened life expectancy are deemed to apply.
It’s clear that depending on their income, many beneficiaries can access significant government funding through an RDSP. RDSPs can also provide an additional financial resource for beneficiaries in their later years, without impacting their provincial disability benefits. While the rules are complex and go beyond the level of detail presented here, the potential benefits make these plans worth considering for those who qualify.