Video: Registered Disability Savings Plan carry forward of entitlements

Transcript

Carry forward of entitlements

As holders may not be able to contribute regularly to the Registered Disability Savings Plan (RDSP), the carry forward measure allows individuals to access unused Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) entitlements from the past 10 years.

Carry forward entitlements are calculated automatically. No separate application is required to access unused CDSG and CDSB.

The maximum annual amounts that can be carried forward and paid out in a particular calendar year are:

• $10,500 in CDSG and this includes any grant entitlement for the current year, and
• $11,000 in CDSB

Eligibility criteria

To access unused CDSG and CDSB entitlements, the beneficiary must:

• be a Canadian resident at the time the eligible contribution is made and for each year of entitlement
• be eligible for the Disability Tax Credit (DTC) at the time the contribution is made and for each year of entitlement
• be 49 years of age or less
• have a valid Social Insurance Number (SIN)
• does not have more than $200,000 in contributions in the plan, and
• is alive at the time of the contribution

Annual statement of entitlement

All holders will receive a statement of entitlements at the beginning of the calendar year to inform them of the amount of CDSG available for the beneficiary. This includes the amount of contributions required to receive the maximum CDSG paid for that calendar year.

Matching rate for CDSG entitlements

The matching rate for unused CDSG entitlements is the same that would have applied had the contribution been made in the year that the entitlement was available.

CDSG is paid in descending order, using the highest available matching rate first (300%), from the oldest year of entitlement to newest, followed by those at the lower rates (200% and then 100%).

Concept metaphor

It is important to remember that when a contribution is made, carry forward is automatically applied. To better understand the concept, think of carry forward as a rocket popsicle.

Each colour represents a matching rate. Red being 300%, white being 200% and blue being the 100%. Based on the amount of contribution made in a year (or taking a bite) the 300% matching rate will apply first, from the oldest year, working your way up to the most current year.

Before accessing any 200% entitlements (the white section of the popsicle) all the 300% entitlements must be empty (which means you must eat all the red to get to the white), and so on, without going over the annual carry forward limit of $10,500 in entitlements.

Example: Matching rate for CDSG entitlements

In 2018, Paul opened an RDSP for his 3-year-old daughter Cindy who was born with a severe and prolonged disability. Cindy has been entitled to the highest matching rates (300% and 200%) every year.

Paul made the following contributions:

• $1,000 in 2018
• $600 in 2019
• $2,400 in 2020

Let’s find out how much grant Cindy receives each year?

When opening the RDSP in 2018, the CDSG entitlements as of Cindy’s year of birth (2015) became available. Entitlements are paid from the oldest year to newest, at the highest matching rate first (think about the rocket popsicle).

By making a $1,000 contribution in 2018, the first $500 received the 2015 entitlement at 300%. The next $500 received the 2016 entitlement at 300% for a total CDSG payment of $3,000 for that contribution.

In 2019, the Government of Canada added the entitlements available for that year. When Paul contributed $600, the first $500 received the 2017 entitlement at 300% and the next $100 received part of the 2018 entitlement at 300% for a total CDSG payment of $1,800 for that contribution. There is $1,200 left of the 2018 entitlement at 300%.

Every calendar year, the Government of Canada will add entitlements available for that particular year. This time, Paul contributed $2,400. The first $1,400 received the remaining entitlements available at the highest 300% matching rate for 2018, 2019 and for the current year, 2020. There is no entitlement left to carry forward at the highest matching rate.

Therefore, the remaining $1,000 of Paul’s contribution will receive entitlements at the next highest rate, from the oldest year to the newest, which means the 2015 entitlement at the 200% matching rate for a total CDSG payment of $6,200 for that year.

Canada Disability Savings Bond (CDSB) entitlements

CDSB entitlements are based on the beneficiary’s family income and accumulate for each year the beneficiary is eligible.

The CDSB amount is the same that would have applied had the CDSB request been made in the year that the entitlement was available.

The CDSB carry forward amount is paid when initially requested, based on the entitlements available, from the oldest year to the newest. Subsequent CDSB amounts are paid in February of each year.

Example: CDSB entitlements

Cynthia has been eligible for the DTC since 2015. She opened an RDSP for herself in 2020 at the age of 30 and applied for CDSB. Her income was below the thresholds each year between 2015 and 2020. Therefore, she qualified for the maximum CDSB entitlement for 2015, 2016, 2017, 2018, 2019 and 2020.

How much bond is she entitled to receive in 2020?

When adding up the unused CDSB entitlements, Cynthia has $6,000 available. Since this amount is within the CDSB annual maximum carry forward limit of $11,000, when opening her RDSP in 2020, she will receive a $6,000 CDSB payment for that year.

Knowledge check

Time for a knowledge check.

1. The maximum annual amounts that can be carried forward and paid out in a particular calendar year are:
   • a. $10,500 in CDSG and $11,000 in CDSB
   • b. $11,000 in CDSG and $10,000 in CDSB
   • c. $12,000 in CDSG and $15,000 in CDSB

Answer

The answer is:

• a. $10,500 in CDSG and $11,000 in CDSB