The Registered Disability Savings Plan and the Canada Disability Savings Grant and Bond Advocis Workshop Presentation February 2014
Historical background Budget 2006 creation of Minister s advisory committee December 2006 A New Beginning Budget 2007 announcement of RDSPs to be available in 2008 Legislation enacted July 1, 2008 RDSPs available on December 2, 2008 Budget 2010 carry forward of entitlements RRSP rollover Budget 2011 Specified Disability Savings Plan Budget 2012 Episodic disability 3 for 1 repayments RESP rollover
Investment options for persons with disabilities Henson Trusts An absolute discretionary trust Beneficiary does not have direct access to funds Is not considered an asset for means testing for provincial disability support payments Registered Disability Savings Plan Is exempt in all jurisdictions for means testing for disability support payments
What is a Registered Disability Savings Plan? It is a savings plan for Canadians with disabilities It is a tax-deferred savings vehicle It is for the sole benefit of the beneficiary It assists parents and others in planning for the long-term financial security of a family member with a disability It is a contract between a financial institution and a client, that is operated for the sole benefit of a named beneficiary
Who can set up an RDSP? Holder The plan holder is the person who establishes the RDSP and makes contributions into the RDSP on behalf of the beneficiary. The plan holder is responsible for the operation of the RDSP For beneficiaries over the age of majority, the holder is generally the beneficiary For beneficiaries under the age of majority, the holder must be an individual or organization legally responsible for the beneficiary
Who qualifies for an RDSP? The beneficiary must be DTC eligible at the time the contract is entered into The beneficiary must be resident in Canada at the time the contract is entered into The beneficiary must be under age 60 (on or before December 31 of the year in which they turn 59) when the contract is opened There can only be one RDSP for a beneficiary at any given time.
Contribution limits for an RDSP $200,000 lifetime contribution limit There is no annual limit Contributions include: Regular contributions RRSP rollovers RESP rollovers Contributions are cumulative
Canada Disability Savings Grant and Bond The Canada Disability Savings Grant is an annual entitlement for a Canadian with a disability It is income tested based on the family income of the beneficiary Parental income when beneficiary is 18 or under Beneficiary s income beginning the year they turn 19 Based on income tax return filed 2 years previously
Canada Disability Savings Grant and Bond The Grant is paid in matching amounts based on contributions A maximum eligibility of $3,500/year A lifetime limit of $70,000 The Canada Disability Savings Bond is an annual entitlement for disabled Canadians with a modest income It is income tested No contribution is required A maximum eligibility of $1,000/year A lifetime limit of $20,000
The Grant Entitlement is: $3500/year when income is less than or equal to the second threshold Matched at 300% on first $500 contributed Matched at 200% on next $1000 contributed Or $1000/year when income is greater than the second threshold Matched at 100% on first $1000 contributed
The Bond $1000/year when income is less than or equal to the phase-out income Based on the grind-down formula when income is greater than the phase-out income but less than the first threshold No bond is paid when annual income is greater than or equal to the first threshold
Annual income phase-out income first threshold second threshold 2014 $25,584 $43,953 $87,907 2013 $25,356 $43,561 $87,123 2012 $24,863 $42,707 $85,414 2011 $24,183 $41,544 $83,088 2010 $23,855 $40,970 $81,941 2009 $23,710 $40,726 $81,452 2008 $21,287 $37,885 $75,769
The Bond formula $1,000 when income is <= phase-out income $1,000 - [$1,000 (A - B) / (C - B)] A = family income B = phase-out income C = first threshold
Carry forward Announced in Budget 2010 Took effect on January 1, 2011 Grant The GoC pays the best benefit to the beneficiary from available entitlements from the current year and the ten previous years, starting from the oldest to the newest, to a maximum of $10,500 Bond The GoC pays all available Bond for the current year and the previous 10 years (maximum is $11,000)
Grant carry forward - example A 32 year old individual with a disability opens an RDSP in 2013. The beneficiary has been DTC eligible since his teens and has been living on social assistance In 2008 the beneficiary turned 27
Carry forward example 2008 2009 2010 2011 2012 2013 Grant eligibility Bond eligibility $3,500 $1,500 @ 300% $2,000 @ 200% $3,500 $1,500 @ 300% $2,000 @ 200% $3,500 $1,500 @ 300% $2,000 @ 200% $3,500 $1,500 @ 300% $2,000 @ 200% $3,500 $1,500 @ 300% $2,000 @ 200% $3,500 $1,500 @ 300% $2,000 @ 200% $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Contribution amount $5,000 Grant paid Total grant paid Total bond paid $1,500 @ 300% $1,500 @200% $1,500@ 300% $1,500@ 300% $1,500@ 300% $1,500@ 300% $1,500@ 300% $10,500 $6,000
Grant carry forward - example A 47 year old individual with a visual impairment opens an RDSP in 2013. The beneficiary has always been DTC eligible. The beneficiary s income fluctuates around the second threshold.
Carry forward examples Grant eligibility Bond eligibility 2008 2009 2010 2011 2012 2013 $3,500 $1,500 @ 300% $2,000 @ 200% $1,000 $1,000 @ 100% $1,000 $1,000 @ 100% $3,500 $1,500 @ 300% $2,000 @ 200% $1,000 $1,000 @ 100% $1,000 $1,000 @ 100% $0 $0 $0 $0 $0 $0 Contribution amount $3,500 Grant paid $1,500 @ 300% $2,000 @200% $500@ 100% $1,500 @ 300% $2,000 @200% Total grant paid $7,500 Remaining grant available $0 $500 $1,000 $0 $1,000 $1,000
Rollovers The GoC will allow the rollover of funds from certain other registered products on a tax-free basis. RRSP rollovers allow a deceased individual s RRSP or RRIF proceeds to be transferred, on a tax-free basis, to the RDSP of a financially dependent infirm child or grandchild. RESP rollover - allow investment income earned in an RESP to be transferred on a tax-free (or rollover ) basis to an RDSP if the plans share a common beneficiary.
Assistance Holdback Amount All grant and bond paid in the last 10 years from that particular time, that has not been repaid. The AHA must be repaid to the GoC when: The beneficiary dies The RDSP is closed The RDSP is de-registered The beneficiary is no longer DTC eligible There is a 3 to 1 repayment amount required when there is a withdrawal of funds, up to a maximum of the AHA.
Primarily Government Assisted Plan At the start of the calendar year an RDSP is determined to have either more private monies (contributions and rollover amounts) or more government monies (grant and bond) This determines how the RDSP will operate for that calendar year This has an effect on the DAP/LDAP limits When PGAP (more government monies) a beneficiary
Payments Disability Assistance Payments Ad hoc payments if allowed by the Specimen Plan Limited by formula Lifetime Disability Assistance Payments Must commence by the end of the year in which the beneficiary turns 60 Annual payments once started Limited by formula
Payments The DAP formula from ITA 146.4(4)(l) A / (B + 3 - C) + D A is the fair market value of the property held by the plan at the beginning of the calendar year (other than annuity contracts held by the plan trust that, at the beginning of the calendar year, are not described in paragraph (b) of the definition qualified investment in subsection 205(1)), B is the greater of 80 or the age in whole years of the beneficiary at the beginning of the calendar year C is the age in whole years of the beneficiary at the beginning of the calendar year D is the total of all amounts each of which is (i) a periodic payment under an annuity contract held by the plan trust at the beginning of the calendar year (other than an annuity contract described at the beginning of the calendar year in paragraph (b) of the definition qualified investment in subsection 205(1)) that is paid to the plan trust in the calendar year, or (ii) if the periodic payment under such an annuity contract is not made to the plan trust because the plan trust disposed of the right to that payment in the calendar year, a reasonable estimate of that payment on the assumption that the annuity contract had been held throughout the calendar year and no rights under the contract were disposed of in the calendar year;
Payments Beneficiary under 60 years Beneficiary more than 59 years Maximum Amount Minimum Amount Maximum Amount Minimum Amount PGAP DAP LDAP DAP+ LDAP The greater of: a) Formula result or b) 10% of the FMV No minimum Always combined with LDAP $1.00 $1.00 The greater amount of: a)formula result or b) 10% of the FMV Formula result Non-PGAP DAP LDAP DAP+ LDAP No maximum No minimum No maximum Always combined with LDAP Formula result No maximum $1.00 $1.00 Formula result No maximum Formula result Legislative formula and the FMV as defined in section 146.4 of the Income Tax Act.
Payments The DAP/LDAP is made up of proportional amounts of money held in the RDSP at the time of payment. (Grant, bond, contributions, earnings, rollovers) The taxable portion of the DAP/LDAP is made up of grant, bond, earnings and rollovers. The portion of a DAP/LDAP made up of contributions is non-taxable
Special situations - SDSP - Loss of DTC election SDSP Specified Disability Savings Plan When a Medical Doctor attests that the beneficiary s life expectancy is less than 5 years Loss of DTC Should the period of a DTC run out and not be renewed, a beneficiary may elect for the RDSP to remain open for a period of up to 5 years if a medical doctor believes that the condition may caused the individual to again be DTC eligible at some time in the future
Estate The RDSP is the property of the beneficiary. Upon death, the RDSP becomes part of the beneficiary s estate. The Assistance Holdback Amount determined as of the date of death is repaid to the Government of Canada.
Current Status Program Statistics (Transactions reported as of December 30, 2013): o 80,136 plans registered o $426.9 million in private contributions made o $604.1 million in grants paid into RDSPs o $244.3 million in bonds paid into RDSPs Total assets in RDSPs are well over $1.2 billion Program take-up is approximately 15% of those eligible to open an RDSP.
Qualified investments The RDSP Specimen Plan of each Financial Institution will identify the types of investments allowed Each Specimen Plan is different Qualified investments for RDSPs are generally the same as those for Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs) and include cash, stocks, bonds, GICs, mutual funds and a variety of other investments. Please verify with the particular Specimen Plan
Case Studies Johnny is 14 and has Down s syndrome He lives at home with his parents Family income is $100,000 Would you recommend that Johnny s parents open an RDSP? Are there any other recommendations you would make to Johnny s parents?
Case Study Bill is 51 and has had an RDSP since 2008. Bill s sole source of income is social assistance. In 2013 Bill receives an inheritance of $60,000. How would you advise him to invest the money? Bills father dies leaving Bill the proceeds of a RIF valued at $150,000. What would you advise Bill to do?
Case Study Jeff and Linda are the parents of Jeff Junior aged 27, who has an intellectual disability. Jeff Junior lives in a group home and receives ODSP Jeff and Linda inquire about the RDSP What information and investment advice would you provide them?
Case Study In October 2012, the year she turned 37, Gloria is severely injured in a car accident. When should Gloria open an RDSP? What if Gloria were 47 when injured? What if Gloria were 57 when injured?
List of Financial Institutions BMO Investments Central 1 Credit Union Central 1 Trust Company CIBC Securities Fédération des caisses Desjardins Société de gérance des fonds FMOQ inc. Global Growth Assets Mackenzie Financial Corporation Scotia Securities The Bank of Nova Scotia TD Waterhouse Royal Bank of Canada Investors Group Community Trust Company
Contact information For more information about the bond and grant: Visit: www.hrsdc.gc.ca/disabilitysavings Call: 1 800 O-Canada (1-800-622-6232) TTY: 1-800-926-9105 Email: rdsp-reei@hrsdc-rhdcc.gc.ca For more information about the Registered Disability Savings Plan: Visit: www.cra.gc.ca/rdsp Call: 1-800-959-8281 TTY: 1-800-665-0354