Registered Disability Savings Plans (RDSPs)
December 1, 2008 is the expected starting date for the availability of RDSPs. It is designed to assist parents and others to save for financial security for relatives with long-term disability. It was announced in the 2007 Federal budget.
Many of the questions involving the RDSPs include, but are not limited to:
Who can set up an RDSP?
Ø Your RDSP can be set up for a beneficiary that is eligible for the disability tax credit. However, certain conditions do apply for a minor, a beneficiary who is not a minor, but is not contractually competent to enter into a disability savings plan or who is contractually competent.
How much can I contribute into an RDSP?
Ø You are allowed to contribute a maximum of $200,000 to your RDSP in a lifetime, this is when the beneficiary turns 59. There is however, no annual limit for contributions, your investments grow tax-free and your contributions are not tax deductible.
Contributions that cannot be made into the RDSP are: Any year in which the beneficiary is not eligible for the tax credit or in the case of death of the beneficiary.
Along with your contributions, the RDSP also consists of the following monetary assistances: Canada Disability Savings Grant (CDSGs), Canada Disability Savings Bonds (CDSBs), and in some cases your investment earnings.
Payments out of the RDSP
Ø There are three types of payments that can be made out of the RDSP, these are:
Disability assistance payments (withdrawals);
Transfers to another RDSP;
Repayments under the Canada Disability Savings Act (CDSA).
What is the taxable amount of disability assistance payments?
Ø A tax is only paid when withdrawals are made from the RDSP. The portion of each withdrawal that relates to earnings, CDSG and CDSB is taxable to the beneficiary.
When and how is an RSDP terminated?
Ø An RDSP will be terminated if the following occur: The beneficiary dies or the beneficiary ceases to have, for a full a calendar year or more, the impairments which resulted in them having the eligibility for the disability tax.
Once terminated, any monetary amounts remaining will be paid to the beneficiary, or the beneficiary’s estate by the end of the following year. Any required payments from CDSG and/or CDSB, are to be received before being paid out.
The RDSP may also be terminated if it ceases to qualify for status because it does not meet the terms and conditions that were set forth.
Any one hoping of registering for this disability tax credit should contact Dustin. The terms and conditions relating to the tax credit are quite intricate and it is impossible to include all situations, circumstances and exceptions in this commentary. Every effort has been made to ensure the accuracy of the information, however, because of the nature of the subject, no person or firm involved in the preparation or distribution of this commentary accepts any liability for its contents or use.