According to a disability planning workshop by the Mackenzie Institute, the CRA reported that more than 365,000 Canadians under the age of 49 who qualify for the Disability Tax Credit have not opened and taken advantage of a Registered Disability Savings Plan (RDSP). The result is billions of dollars in potential government grants and bonds remain uncollected. The good news is that it is possible to catch up on missed grant and bond payments! Read on to see how.
What is a Registered Disability Savings Plan (RDSP)?
The RDSP is a creditor-proof, registered plan that helps provide long-term security for Canadians with disabilities. These plans are similar to RESPs in that contributions to RDSPs are not tax-deductible, but investment returns in the plan are tax-free. Anyone can contribute to an RDSP before the beneficiary reaches age 60. There is no annual limit on the amount you can contribute. However, contributions on behalf of any one beneficiary are capped at a lifetime maximum of $200,000. RDSPs qualify for both federal and provincial grants and bonds as follows.
The Canada Disability Saving Grant (CDSG)
The CDSG is similar to grants received under an RESP program. Under this income tested program, RDSP contributions earn CDSGs at matching rates of up to 300%. A beneficiary can receive the CDSG until December 31st of the year in which they turn 49. An RDSP beneficiary can receive up to $3500 of CDSGs annually and up to $70,000 over their lifetime. Unused entitlements can be carried forward for up to 10 years.
The Canada Disability Savings Bond (CDSB)
The CDSB s also income tested and has a maximum lifetime limit of $20,000. Lower-income families don’t even need to make any contributions to receive the $1000 maximum annual CDSB payment. Higher-income families may qualify for a pro-rated portion, depending on family income.
How can you catch-up on grant and bond payments
If an individual was eligible but did not open an RDSP, unused entitlements can be carried forward for up to 10 years, or to the date of a disability diagnosis. The table below highlights a 5 year plan starting in 2022, that is designed to make up for 10 years’ worth of missed grants. Keep in mind that grants will be paid on unused entitlements, up to an annual maximum of $10,500. In this example, the total contributions made are $21,500, but the total catch-up grants amount to $50,500!
If you (or someone you know) qualified for the Disability Tax Credit when filing a tax return this year and have not opened a RDSP, give us a call to chat about getting one started.
Best,
Mani Fenili (14-June-2022)
Source: Mackenzie Investments Disability Planning workshop held 05-03-2022. Presented by Mackenzie Institute and hosted by Michael Evans, Vice President, National Sales Initiatives, Vivek Bansal director, Tax & Estate Planning.
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