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Taxable Amount of Disability Assistance Payments (DAPs)
Income Tax Act s. 146.4(6), 146.4(7)
Investments in the registered disability savings plan (RDSP) grow tax-free. The beneficiary will pay tax only when withdrawals (disability assistance payments) are made from the RDSP. The portion of each withdrawal that relates to earnings, CDSG and CDSB is taxable to the beneficiary.
The taxable portion of disability assistance payments is calculated as the payment amount (A) less the lesser of
Example for first lifetime disability assistance payment:
Disability assistance payment (A) is $12,893 per year.
This is the first payment, so B is equal to all contributions to date to the RDSP, or $30,000 (20 years @$1,500).
Total lifetime CDSGs and CDSBs equal $90,000 (20 years @$4,500).
Total CDSGs and CDSBs in the previous 10 years equal $45,000.
Fair market value of the RDSP is $296,538.
The assistance holdback amount is $45,000, the total of CDSGs and CDSBs paid in the previous 10 years.
C is $296,538 - $45,000 = $251,538.
The taxable portion of the disability assistance payment is
$12,893 - [$12,893 x $30,000 / $251,538] = $11,355.
This is included in the taxable income of the beneficiary, or if the beneficiary has died, the beneficiary's estate.
The assistance holdback amount of $45,000 would have to be repaid to the government when the above disability assistance payment is made. (Canada Disability Savings Act Regulations s. 5(c)).
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Revised: July 31, 2023
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