Tax Minute: May 10, 2019
Jacqueline Power, Director, Tax and Estate Planning, discusses the Registered Disability Savings Plan (RDSP) and how the RDSP can benefit certain investors.
I’m really excited to be able to be here today to share an opportunity that a lot of people are not aware of. One in eight Canadians have somebody within the family who’s touched by a disability, and we offer, at Mackenzie, the Registered Disability Savings Plan, or RDSP, that can greatly benefit some of these individuals.
So the RDSP was first launched in 2008 by the Federal Government in an effort to encourage people with disabilities to save for the long term. In order for a beneficiary to be eligible for the RDSP, they must be a recipient of the disability tax credit, have a valid Social Insurance Number, they have to be a Canadian resident, and they’re able to open the account up until December 31st of the year they turn 59.
So when the government created the RDSP, they also created the Canada Disability Savings Grant, which is a matching program, and the Canada Disability Savings Bond, which is meant for low-income families. These are amounts that can be contributed to the account and really help increase the value of the account in a relatively short period of time.
The government wants this money to be a long-term hold. So they discourage withdrawals from the account. So, essentially, whenever a redemption is done from the account, the government will look to see if any grant or bond was contributed to the account in the 10 years prior to the redemption. If it was, for every one dollar redeemed, three dollars’ worth of grant and bond needs to be repaid to the government.
Now, one question we get a lot is, “What happens upon the death of the beneficiary?” So in that situation, the account needs to be collapsed by December 31st of the following year. Any grant or bond that was contributed to the account in the 10 years prior to the closure of the account needs to be repaid to the government, and then the balance of the account is paid out to the beneficiary.
If the beneficiary had a will, then it would be distributed as per the will; otherwise, it’ll follow the rules of intestacy in their province.
That’s the RDSP at a high level. If this is of interest, please contact your financial advisor and they would be more than happy to help and provide additional information.