Budget 2012 Implementation of Changes to the RDSP

The AHA is defined as the total amount of grants and bonds paid into an RDSP within a period (normally ten years) before a particular date, less any amount of those grants and bonds that have been repaid to the government.

Yes, due to the provisions applicable to Disability Tax Credit (DTC) "elections" (please refer to the section ELECTING TO KEEP THE PLAN OPEN IF THE BENEFICIARY IS NO LONGER DTC ELIGIBLE), the loss of DTC eligibility in itself is no longer an event requiring AHA repayment; however, it is when it becomes part of any of the DTC-related events (defined below). Consequently, all or a portion of the AHA must be repaid to the Government of Canada when any of the following events occur:

• a withdrawal from the RDSP (except when the RDSP has been designated a Specified Disability Savings Plan);
• the RDSP is deregistered;
• the RDSP is closed;
• either of the following DTC related events occur:
  • the beneficiary is not eligible for the DTC for two full consecutive years and no DTC "election" is made;
  • where a DTC "election" has been made, the beneficiary is not DTC eligible for five full consecutive years; and/or
• the beneficiary dies.

The full AHA amount must be repaid when any of the events listed above occur, with the exception of withdrawals made on or after January 1, 2014. Please refer to the section PROPORTIONAL REPAYMENT RULE.

NOTE: for withdrawals occurring before January 1, 2014, the obligation to repay the full AHA remains.

The DTC is an annual benefit. The loss of DTC-eligibility is deemed to occur on January 1 of the year that the DTC is lost. The period that must be considered to calculate the amount of grant and bond paid (which have not been repaid) is contingent on the DTC status up to the time of the event, as well as requests for DTC elections, and governed by the following rules:

1. If a DTC related event takes place (i.e. the beneficiary is no longer eligible for the DTC for two full consecutive years and no DTC election is made), the contract must be closed; and the grants and bonds paid in the ten years preceding the beneficiary losing DTC eligibility must be repaid.
   

   Example 2:
   John opened his RDSP in 2010 and grant and bond is paid until 2020. In 2021 and 2022 John is no longer DTC eligible and no election is made to keep his plan open. This creates a 'DTC event' (the beneficiary is no longer eligible for the DTC for two full consecutive years and no DTC election is made). The contract must therefore be closed and the grant and bond paid between January 1, 2011 and December 31, 2020 must be repaid.

2. If a non-DTC related event occurs during a time when the beneficiary is not DTC eligible, the AHA period will start ten years before the beneficiary's loss of DTC eligibility and end on the date of the non-DTC related event (even if this surpasses the ten year period).

   Example 3:
   John opened his RDSP in 2010 and received grant and bond until 2020. In 2021, John is no longer DTC eligible and no grant or bond is paid in that year as a consequence. However a withdrawal from the plan is made on July 5, 2021. Since the withdrawal occurs during a time of no DTC eligibility the period that must be considered to calculate the amount to be repaid is between January 1, 2011, and July 5, 2021.

   Example 4:
   John opened his RDSP in 2010 and received grant and bond until 2020. During the timeframe of 2021 to 2024, John is no longer DTC eligible. However, an election is made to keep his plan open. A withdrawal from the plan is made on July 5, 2024. Since the withdrawal occurs during a time of no DTC eligibility the period that must be considered to calculate the amount to be repaid is between January 1, 2011, and July 5, 2024.

This measure is intended to provide greater access to RDSP savings for small withdrawals, while still supporting the long-term savings objective of the plan. Currently, when a withdrawal is made, all government grants and bonds paid into the RDSP during the previous 10 years (i.e. the AHA) must be repaid to the government. When this provision becomes effective in 2014, only $3 of grants and bonds will have to be repaid for every $1 withdrawn from an RDSP up to the maximum of the AHA.

NOTE: The requirement to repay the full AHA will remain in force in all other circumstances.

This measure will apply to withdrawals made after December 31, 2013.

A repayment will be attributed to the AHA in the order in which grants and bonds were paid into the plan, from the oldest to the newest.

The AHA will be reduced by the amount of grant and bond from the AHA period that has been previously repaid. Therefore, RDSP Issuers are required to track which grants and bonds have been repaid and which remain in the plan.

Whether or not the plan has more government contributions than private contributions, the 3 to 1 rule still applies. However, a withdrawal cannot be made if the current fair market value (FMV) of the plan is less than the AHA requirement. In order to calculate the amount that can be withdrawn, the RDSP issuer must determine:

1. what would be the maximum allowable disability assistance payment (DAP) amount (see formula below), and
2. if, by withdrawing the maximum amount, the fair market value (FMV) of the plan would drop below the AHA requirement. If it does, the DAP would have to be reduced accordingly.

NOTE: The Income Tax Act further stipulates that a DAP is prohibited if it would result in the FMV of the plan being less than the AHA immediately after the payment.

When an RDSP includes more grant and/or bond than private contributions immediately before the calendar year, it is considered to be a "restricted year". In such cases, withdrawals are limited. Effective January 1, 2014, the maximum allowable withdrawal amount during a restricted year will be the greater of:

• the maximum formula:
  
  A ÷ (B + 3 - C) + D = the amount of the Lifetime Disability Assistance Payment.
  
  Where:
  
  A = the FMV of the property held in the plan at the beginning of the year (excluding the value of locked-in annuity contracts held by the plan trust);
  B = the greater of 80 or the age of the beneficiary at the beginning of the year,
  C = the actual age of the beneficiary at the beginning of the year, and
  D = the total of all periodic payments paid, or deemed to have been paid, to the plan trust in the calendar year
  
• or, 10% of the FMV of the plan (excluding the value of locked-in annuity contracts held by the plan trust).

Issuers are expected to report and repay the necessary grant and bond "without undue delay". The repayment should be reported in the same reporting period that the DAP occurred.

This measure introduces the option of an "election", where beneficiaries whose eligibility for the Disability Tax Credit (DTC) has lapsed, can go to their medical doctor for an attestation (i.e. a medical certificate) that their condition is such that they are likely to become DTC eligible again in the future. When the RDSP holder files the attestation with the issuer, it will act as an "election" to have the plan remain open for a period of up to five years while the beneficiary is DTC ineligible, as well as allowing all grant and bond to remain in the RDSP. The Canada Disability Savings Regulations have been amended to allow for this provision.

While an RDSP is under the DTC "election", no contributions, no Education Savings rollovers, or grant and bond requests can be made to the plan. However, Retirement Savings rollovers would still be permitted.

This measure will come into force on January 1, 2014. However, until then, a special transitional rule allows beneficiaries, who became DTC-ineligible in the 2011 or 2012 taxation year, to keep their plan open until December 31, 2014, so that they can take advantage of this new measure when it becomes operative.

While there is no form, the medical doctor must sign an attestation (i.e. a medical certificate) stating that the beneficiary's condition is such that in all likelihood the beneficiary will become DTC eligible in the foreseeable future. The issuer is required to keep this document on file.

With the implementation of "elections", the loss of DTC eligibility will remain a trigger for the AHA requirement; however, in a different manner than previously. The Government of Canada will not seek immediate AHA repayment when a beneficiary is no longer DTC eligible. Rather, the holder will have up to December 31 of the year following the calendar year the DTC-eligibility was lost to "elect" to keep the RDSP open, and during this period the AHA can remain in the plan.

If no election is made, the AHA must be repaid and the plan closed. However, if an "election" is made, the AHA can remain in the plan for 5 years. If, by the end of the fifth year of DTC-ineligibility, the beneficiary is still DTC ineligible, the AHA must be repaid and the plan closed by the end of the following year.

Yes, under the new DTC election, a DAP can be requested. However, withdrawals are subject to the 3:1 proportional repayment rule (as of January 1, 2014). Please see the section PROPORTIONAL REPAYMENT RULE. Here are some examples:

During a period when the beneficiary is DTC ineligible and the holder has elected to keep the RDSP open, a transfer is not possible. However, if the holder is certain that the beneficiary will again be granted DTC eligibility during a particular year, then the holder may open a new plan and transfer the assets from the old plan to a new plan—in anticipation of the new plan being registered during that year. If the beneficiary is not granted DTC eligibility for the year in which the plan is opened, the new plan will not meet the requirements of registration and will be nullified and the AHA repaid to the Government.