Time to make use of RDSP

National Post


With the New Year comes a huge opportunity for Canadians with a severe disability who have yet to open a registered disability savings plan (RDSP).

The RDSP is a tax-deferred registered savings plan open to Canadians eligible for the disability tax credit. Up to $200,000 can be invested in the plan. While contributions are not tax-deductible, all earnings and growth accrue tax-deferred.

One of the attractive aspects of the RDSPs is the ability to supplement the plan with matching Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) for beneficiaries age 49 and under.

CDSGs and CDSBs are based on family income. If the beneficiary is under 19, it is his or her parents' family income. At age 19, it's the beneficiary's own family income.

CDSGs are equal to 300% of the first $500 of annual contributions and 200% on the next $1,000 for a maximum annual entitlement of $3,500, subject to a lifetime maximum of $70,000. If family income is more than $83,088, the CDSG is 100% on the first $1,000 of annual contributions.

CDSBs of up to $1,000 annually up to a lifetime maximum of $20,000 can also be paid into RDSPs for lower-income families. No contributions are required.

2011 marks the first time that retroactive CDSGs and CDSBs can be collected based on new contributions.

As a result of the change, when an RDSP is opened, CDSGs and CDSBs will ultimately be paid on unused entitlements for the preceding 10 years (but no earlier than 2008) up to an annual maximum of $10,500 and $10,000, respectively.

The CDSG unused entitlement is applied first to the highest available matching rate, followed by any grant entitlement at lower rates. Both CDSGs and CDSBs will be based on the beneficiary's family income in those particular years.

For example, Josh has a disability and minimal income but has not yet opened an RDSP.

For each of 2008, 2009, 2010 and 2011, Josh accumulated $500 in CDSG entitlements at a 300% matching rate ($500 x 4 = $2,000) and $1,000 in CDSG entitlements at a 200% matching rate ($1,000 x 4 = $4,000).

Also, he earned CDSB entitlements of $1,000 for each of those years ($1,000 x 4 = $4,000).

If Josh opens an RDSP in 2011 with only a $2,000 contribution, he can collect $10,000 of government funds. First, he receives $4,000 of CDSBs, amounting to $1,000 for each of 2008, 2009, 2010 and 2011.

He will also receive $6,000 of CDSGs based on his $2,000 contribution, representing a 300% match of his four annual accumulated $500 CDSG entitlements.

Josh will still have $4,000 of CDSG entitlements at 200% to be carried forward to collect in future years if and when he is able to make sufficient contributions.