In December 2008 the Registered Disability Savings Plan became available after being announced in the 2007 budget. This plan was introduced by the government to help individuals with severe and prolonged disabilities, and their families, to save for their financial security.

Like Registered Education Savings Plans (RESP), contributions to RDSP are not tax deductible and are not included in income when taken out by the beneficiary. Maximum lifetime contributions are $200,000 per individual.

The eligibility requirements for setting up an RDSP are that the beneficiary must:

• be eligible for the Disability Tax Credit. To qualify for the Disability Tax Credit a qualified practitioner certifies that the beneficiary has a prolonged impairment which has been approved by the Canada Revenue Agency.
• be a Canadian resident;
• have a valid Social Insurance Number (SIN);
• be under 60 years of age.

The reason for investing in an RDSP is the potential generous government assistance available. This assistance comes in two forms:

1. an income-tested matching grant known as the Disability Savings Grant (CDSG).

The CDSG is based on income, which differs based on the age of the beneficiary. Until the end of the year the beneficiary turns 18, the “family income” of the parents or legal guardian is used for the bond or matching grants. After 18, the family income generated by the beneficiary is used, even if the beneficiary continues to reside with parents or a legal guardian. If the child is in the care of an agency that receives an amount under the Children’s Special Allowances Act, he or she is eligible for the maximum level of grants and bonds.

The CDSG payable based on family income under $75,769 (2008 level, indexed annually to inflation) is 3x for the first $500 contributed (max. $1,500) and 2x on the next $1,000 contributed (max. $2,000). Thus a contribution of $1,500 will yield $3,500 in CDSG annually. If the family income is over $75,769, the maximum contribution is 1x of $1,000 annually. The maximum CDSG available to the beneficiary in his or her lifetime is $70,000.

2. an income-tested bond known as the Canada Disability Savings Bond (CDSB).

No contributions to the RDSP are required to receive the CDSB. The CDSB is a maximum of $1,000 annually when the family income is below $21,287 and then is phased out on a prorated basis to nil when the family income exceeds $37,885 (2008 level and indexed annually). The maximum of $20,000 is payable to a RDSP over the beneficiary’s lifetime.
The beneficiary is eligible for both the grants and the bonds up until the year he or she turns 49.

To optimize the grants and bonds available remember after the beneficiary turns 19, the income-test for eligibility is based on his or her income.
  

June 24, 2009