Legalese_09-16

Jeff Green | Apr 23, 2009

By Susan Irwin, Lawyer/Executive Director, Rural Legal Services

Every parent hopes that their child will be healthy and happy and grow up to be self-sufficient and financially independent. If the child has a severe disability, the need for ongoing care and financial assistance throughout his or her life may well be the reality. In that event, making provision for the child’s care and financial well-being becomes a primary concern.

To help parents and families save for the long term financial security of a person with a severe disability the Federal Government introduced a new savings vehicle at the end of last year known as the Registered Disability Savings Plan (RDSP). Offered by banks and financial institutions, investment income (i.e. interest, dividends or capital gains) earned in the RDSP accumulates tax free. Although there is a lifetime contribution limit of $200,000, there is no annual limit to the amount that can be contributed. As well, contributions can be made up to the disabled person’s 60th birthday.

More importantly, the Government of Canada has committed to financially assisting persons with disabilities by making contributions to their RDSPs through either the new Canada Disability Savings Grant (CDSG) or the Canada Disability Savings Bond (CDSB) programs. Applications for both the CDSG and CDSB are available from the banks and financial institutions offering RDSPs with eligibility for federal contributions to the RDSP dependent on the plan beneficiary’s family income.

An RDSP can be established for any person under the age of 60 who is eligible for the Disability Tax Credit and is resident in Canada. If the disabled person is under 18, their parent or legal representative may open the RDSP for their benefit. When the child turns 18, he or she can then be added as a joint account holder with their parent. Payments or contributions received from a CDSG or CDSB would then be based on the disabled person’s income instead of his or her families.

Under the Canada Disability Savings Grant, contributions to an RDSP may be supplemented by the Federal Government up to $3,500 per year depending upon the income of the plan beneficiary or the beneficiary’s family, as the case may be, to a maximum lifetime grant of $70,000. The CDSG, like the CDSB can be paid into the RDSP until the beneficiary (i.e. the disabled person) turns 49.

Unlike the CDSG, no contributions have to be made to the RDSP for the beneficiary to be eligible for payments under the Canada Disability Savings Bond program. Up to $1,000 per year can be contributed to the RDSP for lower income families (such as those receiving Ontario Works or Ontario Disability Program benefits) to a lifetime maximum of $20,000.

In addition to government contributions to supplement the RDSP for a disabled person, once the plan is established, anyone with the written consent of the account holder can contribute to the RDSP. This means that aunts, uncles, grandparents or even friends of the disabled beneficiary can contribute to the RDSP to help ensure the financial security of a disabled loved one. While contributions to the plan are not tax deductible, they are not included in the beneficiary’s income for tax purposes when paid out of the RDSP.

A further government initiative, this time provincial, to promote the financial well-being of low-income severely disabled persons is to exempt the funds held in an RDSP from the asset restrictions governing Ontario Works and Ontario Disability Support Program recipients. Further, contributions to the RDSP whether made by the Government or a private individual, as well as payments from the RDSP will not affect social assistance eligibility.

Supporting a minor or adult child with a severe disability is an onerous responsibility, if not burden, even when willingly and lovingly assumed by the family. The introduction of the RDSP as a means to assist families in helping to ensure the financial security of a severely disabled member is some measure of recognition by our governments of not only our social responsibility, but also the daunting challenges faced by the severely disabled and their families.

Although all of the income tax rules and eligibility criteria surrounding RDSPs could not possibly be covered in this column, more detailed information is available from the banks and institutions offering these plans, as well as from the Canada Revenue Agency.