Canada: Planning For Your Disabled Loved One’s Future With RDSPs

As a parent or guardian of someone with a severe or prolonged disability, planning and saving for their future needs can be challenging. The Registered Disability Savings Plan (RDSP) makes saving easier. Below, we answer some common questions about these plans.

What is an RDSP and whom is it intended to benefit? How do you qualify?

An RDSP is a special type of savings plan that can assist in providing long-term financial security for a beneficiary who has a prolonged and severe physical or mental impairment. To qualify as a beneficiary of an RDSP, the individual must be eligible to claim the disability tax credit (DTC). The DTC requires a signed Disability Tax Credit Certificate from a medical doctor or other medical specialist, stating that the disabled person meets the criteria set out in the Income Tax Act. The plan's beneficiary must also have a valid social insurance number, be a resident of Canada at the plan's inception and be under the age of 60. A beneficiary can have only one RDSP at any given time.

The basics – Who can contribute, how much, and over what time period?

Contributions can be made to the plan by the beneficiary, by their parents or family members or by other authorized holders at any time up to the end of the year in which the beneficiary turns 59. RDSP contributions cannot be made after the death of the beneficiary or in a year in which the beneficiary is no longer eligible for the DTC.

There is no annual RDSP contribution limit, but there is a $200,000 lifetime limit on contributions for a specific beneficiary. This limit excludes government assistance grants and bonds paid into the plan under the Canada Disability Savings Act.

Are the payments from the plan to the beneficiary taxable? Are there any restrictions on how the money must be spent?

Only a portion of the future withdrawals from the plan is taxable to the beneficiary.

Payments from an RDSP to a beneficiary can be made at any time and used for any purpose. The only constraints are the timing and the amount of the payments because they are subject to a minimum holdback rule, especially in the first few years of the plan's existence.

How does an RDSP compare to other government savings plans such as RRSPs or Tax-Free Savings Accounts (TFSAs)?

Similar to RRSPs and TFSAs, the earnings generated by RDSP contributions are tax exempt as long as the funds remain in the plan. The combination of generous government assistance and tax-deferred accumulation affords significant savings to accrue over time for disabled individuals.

Under the Canada Disability Savings Bonds (CDSB) program, the government will pay bonds into the RDSP of up to $1,000 annually to low-income Canadians with disabilities. These payments have a lifetime limit of $20,000 and will be paid until December 31 of the year the beneficiary turns 49. Plan holders are not required to contribute to receive these bonds. The amount of the bond is based on the beneficiary's family income.

The beneficiary's "family income" is based on the income information used to determine the Canada Child Tax Benefit (CCTB) until December 31 of the year the beneficiary turns 18. After the beneficiary turns 19 until the RDSP is closed, the beneficiary's family income is based on his or her own income plus his or her spouse's income. Therefore, if the beneficiary is an adult and earns no income, he/she is eligible to collect CDSB's simply by having an RDSP.

In addition to the bonds, the RDSP may receive Canada Disability Savings Grants (CDSG) depending upon both contributions made into the plan by the plan holders and the beneficiary's family income. The government will match contributions to a maximum of $3,500 in one year and up to $70,000 over the beneficiary's lifetime. Grants can be paid into an RDSP on contributions made until December 31 of the year the beneficiary turns 49.

Does the RDSP in any way impact CPP, Old Age Security, etcetera?

The federal government has ensured that the beneficiary's eligibility to receive federal income-tested benefits is not impacted by the withdrawal of income or assets held in an RDSP. Examples include the federal sales tax credit, the child tax benefit, old age security benefits or employment insurance benefits. All provinces and territories fully or partially exempt RDSP assets and income when determining disability benefits.


If you have a disabled family member, an RDSP may be an effective way to save for their future. Speak with your Soberman advisor to determine whether this is the right plan for you and your family.

* * * * * * * *

Jordan Sacks is a senior manager in Soberman's Assurance & Advisory Group and has been with the firm since 2004. Jordan provides a wide range of services to various industries. Some of his specialties include tax provisions, and Scientific Research and Experimental Development (SR&ED) returns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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