For families of people with permanent disabilities, the future presents a difficult, unanswerable question: What will happen when we’re no longer here?
In the past, even leaving assets to a loved one with disabilities could be problematic, putting their access to much-needed government programs at risk. “Sadly, in situations in which a parent had a disabled child and passed away, the disabled person was often then cut off from assistance,” says Rosa Maria Iuliano, tax partner, Collins Barrow Ottawa LLP.
But as the result of an initiative announced by the federal government in the 2007 Budget, the Registered Disability Savings Plan, families now have the opportunity to affordably help provide a better quality of life for family members with disabilities.
“The RDSP has important benefits that didn’t exist before,” says Ms. Iuliano. “The average working person has an RRSP; children can have RESPs for university; this is a tax-deferral program that works for people with disabilities.”
Income earned within the plan is not taxable until withdrawn, when it is taxable (along with grant and bond amounts contributed by the federal government) in the hands of the beneficiary.
“The RDSP is not included in what we call adjusted income when things like federal benefits are considered,” she says. “GST credits and payments received under the Ontario Disability Support Program, for example, are not affected by the receipt of RDSP benefits in most provinces.” (All provinces except Quebec, New Brunswick and Prince Edward Island have exempted RDSP assets and incomes for any income-tested programs.)
To qualify for an RDSP, says David Birkbeck, head, Registered Products Strategy at RBC, the beneficiary must be a Canadian resident, under 60 and eligible for the disability tax credit. “Many people who qualify for the credit may not have applied for it, which requires completing a government form.”
Payments from the plan can be used for any purpose, he says, as long as it is for the benefit of the beneficiary. But if funds are withdrawn, any grant or bond amounts received during the previous 10 years will be clawed back.
The Planned Lifetime Advocacy Network (PLAN), a non-profit organization that advocated for a registered disability savings plan for five years prior to the program’s launch, has joined forces with RBC to help build awareness and educate Canadians about the RDSP.
“People with disabilities should have the opportunity to live good lives today and in the future. There are two foundations for families to think about in their planning: social well-being, through social networks, and financial well-being,” says Jack Styan, PLAN’s executive director.
“In the past, the (financial) mechanisms that were available primarily allowed families to transfer wealth to a person with a disability, but the RDSP allows a much broader range of families to build wealth,” he says. “If you offered most people a plan to which they could contribute $30,000 that would be matched by $90,000 in government grants and bonds, and have that grow to $300,000 over time, they would definitely want to participate. And that really is the potential of this plan.”
Of PLAN’s partnership with RBC, he says, “We recognized that we needed to partner with a national financial institution to effectively educate and support our members in accessing this program. RBC was a great fit because of its culture. Throughout the organization, we found people to be what we describe as ‘asset-minded,’ with a focus on ability rather than the disability.”
RBC also employs many people with disabilities, he says, “and their support of the Paralympics was important to us.”
“We have a shared commitment to helping Canadians who can benefit from this program to do so,” says Mr. Birkbeck of RBC’s partnership with PLAN. “We’re PLAN’s preferred RDSP provider. We collaborated with PLAN during the RDSP development, launched the plan in February of this year, and since then, we’ve opened thousands of accounts, with millions of dollars in assets.”
Highlights of the Canada Disability Savings Grant
When annual net income is less than $77,664, the grant will contribute:
- $3 for every $1 contributed on the first $500
- $2 for every $1 contributed on the next $1,000.
When annual net income is over $$77,664, the grant will contribute:
- $1 for every $1 contributed up to $1,000.
The grant can be received up to a maximum of $70,000 or up until the end of the year the person turns 49.
Highlights of the Canada Disability Savings Bond
When annual net income is $21,816 or less, the Canada Disability Savings Bond will provide $1,000 per year without any contribution.
The RDSP thus becomes accessible to persons with disabilities whose family does not have the resources to make contributions.
In order to receive grants and bonds for 2009, contributions must be made to an RDSP before December 31.
This information was adapted with permission from RDSP.com, a joint educational initiative of the Planned Lifetime Advocacy Network (PLAN) and RBC. For more information, visit PLAN.ca or RDSP.com.
