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The idea behind the Registered Disability Savings Plan is to enable families and disabled adults to accumulate tax-assisted long-term savings to provide for the disabled adult in their later years.
Q: I have a friend who is 37, disabled and unable to work so she is on welfare. Her parents are looking into the Disability Tax Credit so they can start a Registered Disability Savings Plan for her. I’m worried she could lose her welfare and the other government payments she is currently getting. Am I right to be concerned?
A : The Registered Disability Savings Plan (RDSP), inaugurated by the federal government in 2008 to help families save money for a disabled child or adult, is still a work in progress. Changes were recently introduced to ensure low-income beneficiaries are not penalized by having a RDSP. For example, federal benefits and programs such as the Child Tax Credit, the Goods and Services Tax (GST) rebate, Employment Insurance, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) do not take into account RDSP assets or income in calculating eligibility.
However, welfare is a provincially administered income-security program. According to information posted on the federal government’s Human Resources and Skills Development Canada website, all provinces and territories either fully or partially exempt RDSP assets and income when determining eligibility for provincial financial-assistance programs. Quebec in particular exempts RDSP assets from social assistance calculations with income from an RDSP exempt up to the low-income threshold as set by the Institut de la statistique du Québec.
So you need not be concerned that your friend will be worse off if she has an RDSP. Quite the contrary. The idea behind the RDSP is to enable families and disabled adults to accumulate tax-assisted long-term savings to provide for the disabled adult in their later years, at a time when other family members may no longer be around to provide care and financial support.
In fact, while little known and little exploited by the disabled community, Canada’s RDSP is a world first in allowing individual contributions, grants from the government as well as investment growth, to accumulate tax free over at least 10 years up to the beneficiary’s age 49 in order to provide income starting no later than the beneficiary’s age 60. With the ability to contribute up to $200,000 to the plan, including rollovers of other registered assets upon a parents’ or grandparents’ death, and the potential of attracting up to $4,500 annually in government grants and savings bonds (for a lifetime total of $90,000 of free money), I believe every eligible disabled person regardless of income should open a RDSP.
As your friend’s family is currently investigating, the main criteria for opening an RDSP, aside from being a Canadian citizen under the age of 60 with a social insurance number, is that the beneficiary qualifies as having a severe and ongoing physical or mental impairment according to the definitions outlined by the Canada Revenue Agency’s Disability Tax Credit Certificate (DTC). The criteria can be found at www.cra-arc.gc.ca/ disability/.
Now it is true that when it comes time to make withdrawals from the RDSP, the income is taxable in the hands of the recipient. The offsetting effect of the Disability Tax Credit and other deductions serve to lessen the tax impact as well as the fact that the original contributions to the RDSP remain nontaxable. Check the CRA website for the rules concerning minimum and maximum withdrawal amounts as well as special provisions for a beneficiary with a shortened life expectancy.
Given the alternative to having supplemental RDSP income would be relying on government and family assistance only, I think you will agree your friend can benefit from the additional income in her senior years.
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