This information is an excerpt from the SUPPORTING CANADIANS AND FIGHTING COVID-19: FALL ECONOMIC STATEMENT 2020
Budget 2019 proposed changes to the Registered Disability Savings Plan (RDSP) regime for beneficiaries with episodic disabilities. These proposed changes include removing the time limitation on the period for which an RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit (DTC) and further, modifying repayment obligations. Budget 2019 proposed that these changes would apply as of January 1, 2021. It also proposed that until the coming-into-force date of the measure, RDSP issuers would not be required to close an RDSP solely because the beneficiary is no longer eligible for the DTC.
The Government proposes to maintain the implementation timeline for this measure. Any excess repayments of Canada Disability Savings Grants and Canada Disability Savings Bonds in respect of withdrawals made after 2020 and before the measure is enacted would be returned to a beneficiary’s RDSP following enactment.
RDSP issuers will have the normal flexibilities with respect to time to implement these changes. Tax Measures: Supplementary Information 181 Modification to Improve Fairness An RDSP issuer is required to set aside an amount (referred to as the “assistance holdback amount”) equivalent to the total Canada Disability Savings Grants and Canada Disability Savings Bonds paid into the RDSP in the 10 years preceding an event (e.g., a withdrawal or plan closure) or, in the case of a beneficiary who is no longer eligible for the DTC, the 10-year period preceding cessation of eligibility for the DTC, less any repayments of those amounts. This requirement ensures that RDSP funds are available to meet potential repayment obligations.
To allow beneficiaries who cease to be eligible for the DTC to have future access to the grants and bonds within their RDSPs that are within the assistance holdback amount, Budget 2019 proposed to modify the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount, depending on the beneficiary’s age, in the following manner:
- For years throughout which the beneficiary is ineligible for the DTC that are before the year in which the beneficiary turns 51 years of age, the assistance holdback amount would be equal to the assistance holdback amount determined immediately before the beneficiary became ineligible for the DTC, less any repayments made after the beneficiary becomes ineligible for the DTC.
- Over the following 10 years, the assistance holdback amount would be reduced based on the grants and bonds paid into the RDSP during a reference period. This reference period is initially the 10 years immediately before the beneficiary becoming ineligible for the DTC. Each year after the year in which the beneficiary turns 50 years of age, the reference period would be reduced by a year. For example, for the year in which the beneficiary turns 51 years of age, the reference period would be the nine-year period immediately prior to the beneficiary becoming ineligible for the DTC. The assistance holdback amount would be equal to the amount of grants and bonds paid into the RDSP in those nine years, less any repayments of those amounts.
These changes announced in Budget 2019 to the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount could, however, result in a lesser amount of grants and bonds being held back from beneficiaries who become ineligible for the DTC after they attain 50 years of age than is currently held back from beneficiaries of the same age who remain DTC-eligible, or would be held back from beneficiaries of the same age who ceased to be eligible for the DTC at an earlier age.
To ensure more equitable treatment, the Government proposes an additional modification to the formula put forward in Budget 2019 for determining the amount of grants and bonds held back from a withdrawal, in the following manner:
- For a beneficiary who ceases to be eligible for the DTC after the calendar year in which they attain 49 years of age, the reference period for the assistance holdback amount would begin on January 1 of the year that is 10 years before the year in which the event (e.g., withdrawal or plan closure) occurs and end on the day preceding the day on which the beneficiary ceased to be eligible for the DTC. The assistance holdback amount would be equal to the total amount of grants and bonds paid into the RDSP during that period, less any repayments of those amounts.
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Toll-Free Disability Planning Helpline
If you need assistance with or have any questions about the Disability Tax Credit (DTC) or the Registered Disability Savings Plan (RDSP), Plan Institute has a toll-free helpline that you can call any time to be connected with an advisor for one-on-one support.
You can reach our helpline at 1-844-311-7526 and info@rdsp.com.