 |
Andy Wong
Monday, January 14, 2008
Starting in 2008, the federal government will be handing out some serious money to people with severe disabilities using an innovative tax-assisted program.
The new program is the Registered Disability Savings Plan (RDSP) and has benefits you can't pass up: namely, the government matches your contributions, investment income in the plan earned grows tax-free until it is withdrawn and the individual with disabilities pays the tax on the withdrawals.
This is how an RDSP works - let's assume a scenario where you are a parent of a child with a disability. There are four incoming streams of money into an RDSP - your contribution, income earned in the plan, federal grant and the federal bond.
Your contributions to an RDSP are not tax-deductible. But it isn't taxable when it is withdrawn either. The maximum contribution is $200,000, with no annual limit. You cannot withdraw your contributions - only your disabled child (the beneficiary) can. If your child dies, those contributions are paid to the child's estate. Here's a neat feature - anyone can contribute to the plan, including relatives, friends and community groups. Contributions to an RDSP can be made until the end of the year your disabled child reaches age 59.
Your contributions attract generous matching federal grants. If the disabled child's family income (that's Mom and Dad's income) is more than $75,000, the government matches the first $1,000 dollar for dollar.
Therefore, even high-income families will receive the minimum grant of $1,000 annually, if they contribute at least $1,000 annually to an RDSP.
If the family's income is less than $75,000, the grant goes into serious overdrive. The matching grant is 300 per cent on the first $500 contribution, or $1,500! On the next $1,000 contribution, the grant is 200 per cent, or $2,000. Therefore, a family with total income of less than $75,000 receives a total grant of $3,500 annually, even if they contribute only $1,500 annually.
These grants will keep coming until the beneficiary reaches age 49. The maximum annual grant is $3,500, with a lifetime limit of $70,000, which isn't too shabby.
And that's not all. Families with very low incomes, of less than $20,900, receive a bond (a.k.a. more money) of $1,000 paid to the RDSP annually. Low-income families with annual incomes of between $20,900 and $37,200 will receive a reduced annual bond of $500. The bonds are automatically paid into the RDSP annually even if no contributions whatsoever are made to the RDSP. A qualifying RDSP will receive the bond until the beneficiary reaches age 49.
The maximum lifetime limit is $20,000. Therefore, every low-income family with a disabled child or every low-income individual with a disability should set up an RDSP in order to receive this federal bond.
And don't forget, the money from contributions, grants and bonds is invested and makes money for the plan. This investment income grows tax-free until the beneficiary withdraws the money. How does one qualify for an RDSP? Anyone who qualifies to claim the Disability Tax Credit (www.cra-arc.gc.ca/E/pbg/tf/t2201/t2201-07e.pdf) can set up an RDSP with their financial institution of choice. There are no ifs and buts - it's that straightforward.
Where the disabled individual is a minor (under age 18), a parent, grandparent or guardian would set up the RDSP with the disabled child as the beneficiary. If you are an adult with a disability, you would set up and be the beneficiary of your RDSP.
For more info: www.cra-arc.gc.ca/agency/budget/2007/rdsp-e.html
Andy Wong is a tax consultant at MacKay LLP, Chartered Accountants in Yellowknife. He can be reached at andrew-wong@yel.mackayllp.ca.
