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Payments Into an RDSP

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Financial Planning
Disabilities -> RDSPs

Payments into a Registered Disability Savings Plan (RDSP)

A registered disability savings plan (RDSP) will consist of the following:
bullet

contributions made by the holder

bullet

Canada Disability Savings Grants (CDSGs)

bullet

Canada Disability Savings Bonds (CDSBs) in some cases, and

bullet

investment earnings

Only the contributions can be withdrawn tax-free by the beneficiary.  See taxable amount of disability assistance payments for more information.

Contributions to a Registered Disability Savings Plan (RDSP)

bullet The lifetime maximum for contributions to a registered disability savings plan (RDSP) is $200,000
bullet Contributions are permitted to be made until the end of the year in which the beneficiary turns 59.
bullet There is no annual limit for contributions.
bullet Contributions to an RDSP are not tax deductible.
bullet Investments in the RDSP grow tax-free.
bullet Contributions in kind can be made, by transferring investments into the RDSP.  This will result in a deemed disposal of the investments to the person making the transfer, triggering a capital gain or loss.  If this results in a capital loss, the loss will not be deductible (Income Tax Act s. 40(2)(g)(iv)(B)).  This is the same treatment as when investments are transferred into a registered retirement savings plan (RRSP).
bullet If funds are borrowed to contribute to an RDSP, the interest will not be tax deductible (Income Tax Act s. 18(11)(j)).

Contributions may not be made to the RDSP:
bullet in any year in which the beneficiary is not eligible for the disability amount tax credit, or
bullet after the death of the beneficiary

 

Payments into the RDSP by the federal government

Funds will be paid into the RDSP by the federal government, depending on the amount of contributions and family net income, in the form of
bullet Canada Disability Savings Grants (CDSGs), and
bullet in some cases Canada Disability Savings Bonds (CDSBs)

CDSG and CDSB carry forwards

RDSP beneficiaries are currently unable to carry forward unused Canada Disability savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) to future years.

The Federal 2010 Budget proposes to amend the Canada Disability Savings Act to allow a 10-year carry forward of CDSG and CDSB entitlements.  The carry forward will be available starting in 2011.  Plan holders will receive annual statements of CDSG entitlements.

For more information see the 2010 Budget website topic Carry forward of RDSP grants and bonds.

Canada Disability Savings Grants (CDSG)

Canada Disability Savings Act

The federal government will give Canada Disability Savings Grants to the RDSP, depending on family net income and annual contributions.  The lifetime limit for CDSG for any beneficiary is $70,000.

When the beneficiary of the RDSP is
bullet an individual who is at least 18 years of age, and less than 49 years of age, on December 31 of the preceding year, and whose family net income is less than or equal to $74,357 in the second preceding year
bullet a qualified dependent of an eligible individual whose adjusted income for calculation of the child tax benefit in respect of January is less than or equal to $74,357, or
bullet a person for whom a Children's Special Allowance is payable for at least one month in the year,

then the amount of CDSG paid in a year will be a maximum of $3,500, calculated as:
bullet 300% of the first $500 of contributions in the year, plus
bullet 200% of the next $1,000 of contributions in the year.

In any other case, the amount of the CDSG will be 100% of the total contributions in the year, to a maximum of $1,000.

The family income amount of $74,357 will be indexed for years after 2007.  See the table below.

Note:  The Canada Disability Savings Act Regulations include provisions that an RDSP will be eligible to receive both CDSGs and CDSBs until the end of the year in which the plan beneficiary attains 49 years of age.  The Regulations also state that the beneficiary must be a DTC-eligible individual in the year in which the RDSP contribution is made (re CDSGs), or in the year in which the CDSB is payable.

 

Canada Disability Savings Bonds (CDSBs)

Canada Disability Savings Act

The federal government will also give CDSBs of up to $1,000 per year, to RDSPs established by low and modest-income families.  It is not necessary to make contributions to the RDSP in order to receive CDSBs.  The lifetime maximum CDSB limit is $20,000.

The amount of CDSBs given to an RDSP in a year will be $1,000, if the beneficiary of the RDSP is
bullet an individual who is at least 18 years of age, and less than 49 years of age on December 31 of the preceding year, and whose family net income is less than or equal to $20,833 in the second preceding year
bullet a qualified dependent of an eligible individual whose adjusted income for calculation of the child tax benefit in respect of January is less than or equal to $20,833, or
bullet a person for whom a Children's Special Allowance is payable for at least one month in the year

Where the family net income or adjusted income is greater than $20,833 but less than $37,178, the amount of the CDSB will be:

$1,000 - [$1,000 x (A - B) / (C - B)]

where
bullet A is the family net income or adjusted net income
bullet B is $20,833, and
bullet C is $37,178

 

In any other case, there will be no CDSB paid.

Example:  For family net income of $30,000, the CDSB for the year will be:

$1,000 - [$1,000 x ($30,000 - $20,833) / ($37,178 - $20,833)]

= $1,000 - [$1,000 x ($9,167 / $16,345)]

= $1,000 - [$1,000 x 0.560844] = $1,000 - $560.84

= $439.16

The amounts of $20,833 and $37,178 will be indexed for years after 2007, as per the following:

The following tables are reproduced from Department of Finance and Canada Revenue information, and updated for 2012 income levels.

Canada Disability Savings Grant (CDSG)
Matching Rates on Contributions

Family Income 1 ($)

up to 85,414

over 85,414
300% on first $500 100% on first $1,000
200% on next $1,000  

Maximum Annual CDSGs and CDSBs

 

Family Income 1 ($)

up to
24,863
24,863 to
42,707
42,707 to
85,414
over
85,414
CDSG matching rate ($)
300% 1,500  1,500  1,500  nil 
200% 2,000  2,000  2,000  nil 
100% nil  nil  nil  1,000 
CDSB 1,000  5002 nil  nil 
Total assistance $4,500  $4,000  $3,500  $1,000 

1These income thresholds are for 2012, and are indexed to inflation.  The lower 2 amounts are the same as the National Child Benefit (NCB) Supplement thresholds, and the higher amount is the taxable income above which the middle federal tax bracket begins.  The 2012 and 2011 amounts can be found in the Canada Revenue Agency Fact sheet - 2012 indexation adjustment for personal income taxes.

2Average amount of CDSB, assuming even distribution of families over income range.

See also the Human Resources and Skills Development Canada web page on the Disability Savings Grant and Bond.

Next:  Payments out of the RDSP

Back to RDSP main page

 

Revised: June 22, 2013

 

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