RDSP (registered disability savings plan)

Who can have one and who can contribute

The beneficiary must be approved for the disability tax credit, have a valid social insurance number, be a resident of Canada when the plan is opened and be under 60. A plan can be opened until the end of the year the beneficiary turns 59, and a person can have only one RDSP at a time. Approval for the credit comes from the CRA after a medical practitioner certifies Form T2201.

Anyone can contribute with the plan holder’s written permission, which makes the plan useful for parents and other relatives. Contributions are not tax deductible and are not refunded to the contributor. The lifetime limit is $200,000 per beneficiary and there is no annual limit.

Grants and bonds

The Canada disability savings grant matches contributions at 300%, 200% or 100%, depending on the beneficiary’s adjusted family net income and the amount contributed. It is capped at $3,500 a year and $70,000 for life, and it is paid on contributions made until the end of the year the beneficiary turns 49. Income thresholds are indexed every year, so confirm the current figures with the plan issuer.

The Canada disability savings bond is up to $1,000 a year for lower-income beneficiaries, with a $20,000 lifetime limit, and no contribution is needed to receive it. To qualify for either, the beneficiary must file a tax return every year the plan is open. Unused grant and bond entitlements can generally be carried forward for up to 10 years.

An illustrative example

Suppose a beneficiary’s adjusted family net income is below the indexed threshold and a parent contributes $1,500 in a year. The first $500 is matched at 300% and the next $1,000 at 200%, so the plan receives $1,500 in grant on the first portion and $2,000 on the second, for $3,500 in total. The figures are illustrative and depend on income in the year.

If money is withdrawn and a grant or bond was paid into the plan in the previous 10 years, $3 of grant and bond must generally be repaid for each $1 withdrawn, up to the total paid in that period. A $2,000 withdrawal could therefore trigger a repayment of up to $6,000. There are exceptions, such as after the beneficiary turns 60.

Withdrawals and tax

Withdrawn contributions are not income to the beneficiary. Grants, bonds, investment income and rollover amounts are included in the beneficiary’s income when paid out, so keep every tax slip the plan issuer provides. Regular withdrawals must begin by the end of the year the beneficiary turns 60. In some provinces, withdrawals can also affect provincial benefits, so check this before you start.

What to discuss with your accountant

Ask whether the disability tax credit has been claimed correctly, how to time contributions to capture grant, and whether a rollover of a deceased parent’s RRSP or RRIF proceeds is available for a financially dependent child or grandchild. Bring the plan statements and any tax slips from the issuer for each year.