Registered disability savings plan (RDSP)

A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit (disability amount).

Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age. Contributions that are withdrawn are not to be included as income for the beneficiary when paid out of an RDSP. However, the Canada disability savings grant (grant), Canada disability savings bond (bond) and investment income earned in the plan are included in the beneficiary's income for tax purposes when paid out of the RDSP.

Eligibility and contributions

Who can become a beneficiary of an RDSP?

You will be able to designate an individual as beneficiary if the individual:

  • is eligible for the disability amount;
  • has a valid social insurance number (SIN);
  • is a resident in Canada at the time the plan is entered into; and
  • is under the age of 60. This age limit is not applicable when a beneficiary's RDSP is opened as a result of a transfer from the beneficiary's prior RDSP.

A beneficiary can only have one RDSP at any given time, although this RDSP may have several plan holders throughout its existence, and it can have more than one plan holder at any given time.

Notes
A person is eligible for the disability amount only if a qualified practitioner certifies on Form T2201, Disability Tax Credit Certificate, that the individual has a severe and prolonged impairment in physical or mental functions. The form must also be approved by the CRA and determined as being eligible for the disability amount. You can also get Form T2201 by calling 1-800-959-2221.

The holder does not have to be a resident of Canada. However, the beneficiary must be a resident of Canada when the plan is opened and when each contribution is made to the plan. RDSP payments can only be made to the beneficiary (or to the beneficiary's estate after the beneficiary's death). Contributors will not be entitled to a refund of their contributions.

Who can contribute to the RDSP?

Anyone can contribute to an RDSP with the written permission of the plan holder. For more information on who is qualified to become a holder, see "Opening an RDSP".

Opening an RDSP

How do you open an RDSP?

To open an RDSP, a person who qualifies to be a holder of the plan must contact a participating issuer that offers RDSPs. Generally, financial institutions are the issuers of RDSPs.

Note The plan holder is the person who opens the RDSP and makes or authorizes contributions on behalf of the beneficiary.

Who can open an RDSP?

If the beneficiary has reached the age of majority and is legally able to enter into a contract, then a disability savings plan can be established for such a beneficiary by the beneficiary and/or the legal parent who is, at the time the plan is established, a holder of a pre-existing RDSP of the beneficiary.

If the beneficiary is a minor, another person can open an RDSP for the minor and become a holder if that person is:

  • a legal parent of the beneficiary;
  • a guardian, tutor, or curator of the beneficiary, or an individual who is legally authorized to act for the beneficiary; or
  • a public department, agency, or institution that is legally authorized to act for the beneficiary.

Can the holder of an RDSP be changed?

When a plan is opened by a beneficiary's legal parent(s), the legal parent(s) may continue as holder(s) of the plan after the beneficiary reaches the age of majority. When the beneficiary becomes an adult and is legally able to enter into a contract, the beneficiary may be added to the RDSP as a joint holder if he or she so wishes. In all other cases, the beneficiary is the only one who can be a holder of the plan once he or she has reached the age of majority and is legally able to enter into a contract. If a plan is opened by somebody other than the beneficiary or the beneficiary's legal
parent(s), that person or body must be removed as a holder of the plan when the beneficiary reaches the age of majority.

An individual who is eligible to be a beneficiary of an RDSP (but for whom a plan has not yet been established) may have reached the age of majority but may not be legally able to enter into a contract due to a mental impairment. If so, another qualified person may open an RDSP for the individual and become a holder. These qualified persons are:

  • a guardian, tutor, or curator of the beneficiary, or an individual who is legally authorized to act for the beneficiary; or
  • a public department, agency, or institution that is legally authorized to act for the beneficiary.

A legal parent may open a plan for a beneficiary who has reached the age of majority and is not legally able to enter into a contract due to a mental impairment when the plan is opened as a result of a transfer from another RDSP under which the parent is named as a holder. Also, a legal parent of a beneficiary, who has reached the age of majority and is not legally able to enter into a contract due to a mental impairment, can open a plan for the beneficiary provided the legal parent is legally authorized to act on behalf of the beneficiary.

A holder who is not the beneficiary of the plan does not have to be a resident of Canada but must have a valid Social Insurance Number or Business Number (for public institutions, departments and agencies) in order to establish the plan.

If the guardian, tutor, public department, or any other qualified individual or body is no longer qualified to to be a holder (for example the beneficiary's guardian is no longer the legal guardian or has died) they must be removed from the plan as holder.  In such a case, the following may be added to the plan as successor or assignee of a holder:

  • the beneficiary;
  • the beneficiary's estate;
  • any other person or body who is already a holder (for example, two legal parents enter into an RDSP contract together and one parent passes away, the other parent would receive the deceased parent's rights and become the sole holder of the plan);
  • any other person or body who is qualified to be a holder; or
  • a legal parent of the beneficiary who had previously been a holder of the plan. 

Payments and rules

In this section you will find information on the different types of payments you can expect to receive from your RDSP, how they are calculated and how they are reported. We also provide information on the rules that apply when the grants and bonds exceed the contributions made to the RDSP. You will also find an example of the calculation to determine the amount of the payment.

RDSP limits and transfers

What is the contribution limit on RDSPs?

There is no annual limit on amounts that can be contributed to an RDSP of a particular beneficiary in a given year. However, the overall lifetime limit for a particular beneficiary is $200,000. Contributions are permitted until the end of the year in which the beneficiary turns 59 years of age.

Note
Amounts directly transferred from a beneficiary's RDSP to another RDSP for the same beneficiary are not included in calculating the $200,000 overall contribution limit.

Transfers

A transfer from one RDSP to another may only be made under the following conditions:

  • the transfer must be made from a beneficiary's RDSP to another RDSP for the same beneficiary;
  • a transfer may only be completed if all holders of the current RDSP agree to the transfer; and
  • all funds must be transferred from the current RDSP to the new RDSP.

If the transfer to the new RDSP is not completed within 120 days from the date the new RDSP contract is signed, the new RDSP will be considered invalid and the prior RDSP will continue as the ongoing plan.

Under proposed changes, as of July 1, 2011, for deaths occurring after March 3, 2010, the existing registered retirement savings

 

 

 

Carol Ireland

Carol Ireland

Sales Representative
CENTURY 21 Millennium Inc., Brokerage*
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