Notice # 347 - Changes Proposed in Budget 2019 to the Registered Disability Savings Plan

Purpose

The purpose of this Information Bulletin is to provide Registered Disability Savings Plan (RDSP) issuers and authorized agents with an overview of the changes proposed in Budget 2019.

Improvements to the Registered Disability Savings Plan

On March 19, 2019, Budget 2019 announced two proposed changes to the RDSP, both of which address concerns raised by stakeholders and Canadians with disabilities. These changes will better protect the long-term savings of persons with disabilities.

Eliminate the requirement to close a RDSP when the beneficiary no longer qualifies for the Disability Tax Credit (DTC)

A RDSP may be established only for a beneficiary who is eligible for the DTC. Prior to March 19, 2019, when a beneficiary no longer qualified for the DTC, the plan would generally have been required to be closed by the end of the year following the first full year throughout which the beneficiary no longer qualified for the DTC (unless a special election was filed with the issuer on cessation of DTC-eligibility). In addition, upon plan closure the Assistance Holdback Amount ^{Footnote 1} would be repaid to the Government of Canada.

Budget 2019 proposed to eliminate the requirements to close a RDSP and to repay the Assistance Holdback Amount when the beneficiary no longer qualifies for the DTC.

This means that during any period in which a beneficiary is DTC- ineligible, there will no longer be a requirement for the beneficiary to provide a medical certification that the beneficiary is likely to become DTC-eligible at some point in the future.

While a beneficiary is DTC-ineligible, the operations of the RDSP will be limited to the rules that currently apply during the period for which an election is valid, with some modifications below:

• No contributions can be made to the plan, including the rollover of Registered Education Savings Plan (RESP) investment income; however, a rollover of proceeds from a deceased individual’s Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) to the RDSP of a financially dependent infirm child or grandchild will be permitted, if made by the end of the fourth calendar year following the first full calendar year throughout which the beneficiary is DTC- ineligible;
• The beneficiary is not eligible to receive grants and bonds, nor will entitlements accrue during any period where the beneficiary remains DTC-ineligible;
• Withdrawals will be permitted, but will trigger repayment of the Assistance Holdback Amount, which requires that $3 in grant and bond be repaid, for every $1 withdrawn from an RDSP up to a maximum of the total Assistance Holdback Amount, over a modified period:
  • The Assistance Holdback Amount will be determined as all grants and bonds paid into the RDSP in the ten-year period immediately preceding the time when the beneficiary was no longer DTC eligible, minus any grants and bonds paid into the RDSP during that time that has subsequently been repaid to the Government of Canada;
  • The reference period for the Assistance Holdback Amount will remain the ten-year period preceding the time when the beneficiary was no longer DTC-eligible, until the beginning of the year that the beneficiary turns 51, when it will become nine years, decreasing at the beginning of each subsequent year until the beginning of the year the beneficiary turns 60 when it becomes nil.

To ensure an option to close a plan continues to exist for beneficiaries who are DTC-ineligible, a plan holder will be allowed, at any time during which a beneficiary is DTC-ineligible, to request closure of the RDSP of the beneficiary. Upon such a closure, the sums remaining in the RDSP after repayment of the Assistance Holdback Amount to the Government of Canada will be paid to the beneficiary. The Assistance Holdback Amount will be modified to reduce by one year, for each year beginning the year that the beneficiary turns 51.

The measure will apply after 2020 and will take effect once the amended legislations receive Royal Assent; however, as of Budget Day (March 19, 2019), issuers are not required to close a RDSP solely due to DTC-ineligibility.

Exempt RDSPs from seizure in bankruptcy

Unlike Registered Retirement Savings Plans (RRSPs), current rules do not exempt assets held in RDSPs from seizure by creditors in bankruptcy.

To ensure equity with RRSPs, Budget 2019 also proposes to exempt assets held in RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.

The RDSP exemption will come into force on a date to be proclaimed.

Further information

You can find more information on the changes proposed in Budget 2019 to the Registered Disability Savings Plan at:

• Improvements to the Registered Disability Savings Plan, and
• Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit

Contact us

If you have any questions regarding this information bulletin, please contact us by e-mail at rdsp-reei@hrsdc-rhdcc.gc.ca or call at 1-866-204-0357. Our hours of operation are from 8 a.m. to 5 p.m. Eastern Time.