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Registered Disability Savings Plans (RDSP)

A New Program in the 2007 Federal Budget

The 2007 federal budget proposes to introduce a new Registered Disability Savings Plans (RDSP) to help parents and others save for the long-term financial security of children with severe disabilities.

RDSP will be based generally on the Registered Education Savings Plan (RESP) design. In addition, there will be a Canada Disability Savings Grant that is similar to the  the Canada Education Savings Grant for RESP, and a  Canada Disability Savings Bond program. The later program will consist of additional government contributions of up to $1,000 per year to RDSPs for low-income beneficiaries and families.   

The government intends to work with financial institutions to put the necessary administrative mechanisms in place to enable RDSPs to be offered as soon as possible in 2008.

Eligibility

Generally, any resident of Canada eligible for the disability tax credit, or his or her parent  or other legal representative, will be eligible to establish an RDSP. The individual eligible for the disability tax benefit will be the plan beneficiary.

Contributions

Anyone may contribute to an RDSP. Contributions in respect of the beneficiary will be limited to a lifetime maximum of $200,000, with no annual limit. Contributions  will be permitted until the end of the year in which the beneficiary attains 59 years of age.

Tax Treatment

Contributions to an RDSP will not be tax-deductible. The investment income earned on the assets in an RDSP will accrue tax-free. Amounts paid out of an RDSP, other than amounts paid from contributions to the plan, will be included in the beneficiary's income.

Canada Disability Savings Grants (CDSG)

RDSP contributions made in a year will qualify for Canada Disability Savings Grants (CDSG) at matching rates of 100 per cent, 200 per cent or 300 per cent, depending on family net income and the amount contributed.  The table below illustrates the specific matching rates that will apply to annual contributions, by family net income level (2007 dollars).

Family Net income up to  $74,357:      300% on first  $500

                                                           200% on next  $1,000

Family Net Income over 74,357:          100% on first $1,000

There will be a lifetime limit of $70,000 on CDSGs paid in respect of an RDSP beneficiary. An RDSP will be eligible to receive CDSGs until the end of the year in which the beneficiary attains 49 years of age.

Amounts paid put of RDSP will not reduce Old Age Security or Employment Insurance benefits. The government intends to work with the provinces and territories to ensure that the RDSP is an effective savings vehicle with regards to provincial and territorial income support programs.

Source: FORUM, Advocis, May 2007