Registered Disability Savings Plan payments

Disclaimer: RDSP issuers

The information contained on this page is technical in nature and is intended for Registered Disability Savings Plan (RDSP), Canada Disability Savings Grant (grant) and Canada Disability Savings Bond (bond) issuers. For general information, visit the RDSP section.

Consult this page frequently for newer versions. The following laws and regulations take precedence over information contained in InfoCapsules in the event of discrepancies:

  • Income Tax Act
  • Canada Disability Savings Act
  • Canada Disability Savings Regulations

Prerequisites for this module

Before beginning this module, we strongly recommend that you complete the first module entitled Registered Disability Savings Plan administration.

Objective

At the end of this module, you will be able to understand the difference between a disability assistance payment (DAP), a lifetime disability assistance payment (LDAP) and the conditions related to these payments based on the type of plan.

Resources

For detailed information on the topics covered in this module, visit Canada.ca/RDSPresources. The RDSP Provider User Guide and InfoCapsules are located under the User Guides and Publications tab.

1. Introduction

1.1 Two types of payments

Two types of payments can be made from a Registered Disability Savings Plan:

  • a disability assistance payment or DAP and
  • a lifetime disability assistance payment or LDAP

1.2 Disability assistance payment

A DAP is a discretionary payment that can be requested and made to a beneficiary or his estate at any time.

Financial institutions must stipulate in their specimen plan if DAPs are permitted.

A DAP includes a portion of:

  • contributions
  • earnings (including rollovers)
  • grant
  • bond and
  • payments from designated provincial programs

where funds are available.

1.3 Lifetime disability assistance payment

A lifetime disability assistance payment or LDAP is payable at least annually until the plan is terminated or the beneficiary dies, whichever occurs first. In other words, once LDAPs begin, they cannot be stopped.

An LDAP includes a portion of:

  • contributions
  • earnings (including rollovers)
  • grant
  • bond and
  • payments from designated provincial programs

where funds are available.

Payments must begin no later than December 31 of the calendar year in which the beneficiary turns 60 years of age; however, LDAPs may be requested earlier.

1.4 DAP and LDAP scenario

Here is a quick example of how a beneficiary could receive both a DAP and an LDAP.

Sarah currently receives a monthly LDAP of $500 to help cover her expenses. When her ramp breaks in July, Sarah asks for a one-time $2,000 DAP to cover the repairs. So, for the month of July, Sarah will receive both her regular $500 LDAP as well as an extra $2,000 DAP to fix her ramp.

2. Payment rules

2.1 Current payment rules

A payment cannot be made if the fair market value of the plan, after the payment, will be less than the assistance holdback amount. An $8,000 DAP is requested. The RDSP has a fair market value of $20,000 and an assistance holdback amount of $15,000; therefore, the holder will be limited to $5,000.

A payment made from an RDSP cannot contain grant and bond that is less than 10 years, unless it is a Specified Disability Savings Plan or SDSP.

Once an RDSP has been designated as an SDSP, payments must begin no later than the following year.

2.2 PGAP and non-PGAP designations

In a primarily government assisted plan or PGAP, there are more government incentives than private contributions while in a non-PGAP, the plan contains more private contributions than government incentives.

The PGAP and non-PGAP designation for a plan is established on January 1 of each calendar year and remains in effect for the full calendar year, up to December 31.

2.3 Taxation

The following portions of a DAP or an LDAP are taxable to the beneficiary or his estate:

  • grant
  • bond
  • earnings
  • payments from designated provincial programs
  • rollovers of retirement savings and
  • rollovers of education savings

The contribution portion of the DAP or the LDAP is non-taxable.

2.4 Repayment of grant and bond

Don’t forget: when a payment from an RDSP is paid and there is grant and bond that is less than 10 years in the plan, the financial institution repays the lesser of the following amounts:

  • $3 for every dollar withdrawn or
  • the assistance holdback amount before the payment

Any repaid amount of grant and bond cannot be replenished.

3. Minimum and maximum amounts

3.1 Payment ranges

Before money can be taken out of the account, the financial institution must determine whether or not the amount requested is within the applicable minimum and maximum payment rules which may differ depending on the plan type:

  • an RDSP in a regular PGAP or non-PGAP year
  • an RDSP in a specified year and
  • a Specified Disability Savings Plan

For more information on plan types, see InfoCapsule 21.

3.2 RDSP in a regular year

In a primarily government assisted plan:

  • the maximum amount for a DAP or a combined DAP and LDAP is the greater of the formula result and 10% of the RDSP’s fair market value at the beginning of the year (excluding annuities) plus any annuity payments that will be made in the year and
  • the maximum amount for an LDAP is the formula result

Please note: the formula result will be explained further in this module.

Before the end of the year in which the beneficiary turns 59:

  • there is no minimum amount for a DAP and
  • the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning the year that the beneficiary turns 60:

  • the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result

In a non-primarily government assisted plan:

  • there is no maximum for a DAP or a combined DAP and LDAP and
  • the maximum amount for an LDAP is the formula result

Before the end of the year in which the beneficiary turns 59:

  • there is no minimum amount for a DAP and
  • the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning the year that the beneficiary turns 60:

  • the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result

3.3 RDSP in a specified year

A specified year begins when a doctor attests that a beneficiary is not likely to survive more than five years.

In an RDSP in a specified year:

  • there is no maximum for a DAP, an LDAP or a combined DAP and LDAP

Before the end of the year in which the beneficiary turns 59:

  • there is no minimum amount for a DAP and
  • the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning the year that the beneficiary turns 60:

  • the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result

3.4 Specified Disability Savings Plan

A Specified Disability Savings Plan or SDSP provides beneficiaries who have a shortened life expectancy with greater flexibility to access their savings.

In an SDSP, the minimum amount is the formula result. The taxable portion of a DAP or an LDAP must not be more than $10,000. However, if the formula generates a taxable amount that is greater than $10,000, there will be no maximum amount.

4. Getting ready to calculate a payment

4.1 Information needed for calculations

Here is an overview of the steps needed to calculate a DAP or an LDAP.

  • Step 1: Identify the plan type
  • Step 2: Determine if the plan is PGAP or non-PGAP
  • Step 3: Identify the required formulas
  • Step 4: Find the applicable minimum and maximum payment rules
  • Step 5: Find the fair market value of the property held in the plan on January 1 and on the date just prior to the payment
  • Step 6: Determine the age of the beneficiary on January 1 and December 31 of the current year
  • Step 7: Determine the grant and bond amounts that are greater than 10 years old
  • Step 8: Determine the assistance holdback amount
  • Step 9: Begin the calculations

Templates are available at the end of the RDSP provider user guide chapter 2-2 on payments to assist in calculations.

How to calculate an LDAP is also explained later in this module.

5. Breaking down the formulas

5.1 LDAP formula

To calculate the minimum and maximum payment requirements, the following formula is applied:

"A" divided by open round bracket "B" plus 3 minus "C" close round bracket plus "D"

Where:

  • "A" is the fair market value of the plan on January 1 of the calendar year (excluding locked-in annuities)
  • "B" is the greater of 80 and the age of the beneficiary on January 1 of the calendar year
  • "C" is the age of the beneficiary on January 1 of the calendar year
  • "D" is the total of all payments paid to the trust from a locked-in annuity during the calendar year

5.2 Non-taxable portion of the DAP/LDAP

The non-taxable portion is the lesser of the DAP/LDAP amount and the formula.

To calculate the non-taxable portion of the DAP/LDAP formula, the following formula is applied:

"A" times "B" divided by "C" plus "D"

Where:

  • "A" is the amount of the DAP/LDAP request
  • "B" is the contributions made to the RDSP that have not already been used to determine the non-taxable portion of previous DAPs/LDAPs
  • "C" is the result of the assistance holdback amount being subtracted from the fair market value at the time immediately before the payment
  • “D” is the advantage tax paid by the holder in respect of the plan or a prior RDSP for the beneficiary. (“D” is $0 if the tax has been waived, cancelled, or refunded or if the tax amount was included in a previous non-taxable portion calculation)

5.3 Grant portion of the DAP/LDAP

To calculate the grant portion of the DAP/LDAP formula, the following formula is applied:

"A" times "B" divided by "C"

Where:

  • "A" is the amount of the DAP/LDAP request
  • "B" is the amount of grant in the RDSP that is over 10 years old
  • "C" is the result of the assistance holdback amount being subtracted from the fair market value at the time immediately before the payment

5.4 Bond portion of the DAP/LDAP

To calculate the bond portion of the DAP/LDAP formula, the following formula is applied:

"A" times "B" divided by "C"

Where:

  • "A" is the amount of the DAP/LDAP request
  • "B" is the amount of bond in the RDSP that is over 10 years old
  • "C" is the result of the assistance holdback amount being subtracted from the fair market value at the time immediately before the payment

5.5 Earnings portion of the DAP/LDAP

To calculate the earnings portion, simply subtract the grant, the bond and the non-taxable portions previously calculated from the DAP/LDAP amount requested.

5.6 Specified maximum amount

The specified maximum amount is the greater of the LDAP formula result or 10% of the RDSP’s fair market value at the beginning of the year (excluding annuities) plus any annuity payments that will be made in the year.

6. Scenario

6.1 LDAP from a regular RDSP

A 59-year-old requests his first ever payment, an LDAP, from his plan. His plan contains $200,000 in contributions, $16,000 in grant and $45,448 in earnings. The fair market value of the RDSP on January 1, 2034 is $261,448.

Given this is a non-PGAP RDSP in a regular year for a 59-year-old beneficiary, the formula result will be the amount taken out of the plan. Here is the breakdown of the calculation.

6.2 LDAP formula

  • "A" is the fair market value of the plan, so $261,448
  • "B" is the greater of 80 and the age of the beneficiary, which is 59, so 80
  • plus 3
  • "C" is the beneficiary’s age on January 1, so 59 and
  • "D" is the locked-in annuities amount, so $0

Once all these amounts are factored in, the result is an LDAP of $10,893.67.

The following sections will illustrate which amounts make up the payment.

6.3 Non-taxable portion of the LDAP

Once the LDAP amount is calculated, it must be broken down for reporting purposes.

The non-taxable portion must be calculated. Applying the "A" times "B" divided by "C" formula, where:

  • "A" is the LDAP amount, so $10,893.67
  • "B" is the contributions not previously used, so $200,000
  • "C" is the fair market value minus the assistance holdback amount, so $261,448 and
  • "D" is the advantage tax that the holder paid, so $0

The result is a non-taxable portion amount of $8,333.34 since it is less than the LDAP request.

6.4 Grant portion of the LDAP

The grant portion must be calculated. Applying the "A" times "B" divided by "C" formula, where:

  • "A" is the LDAP amount, so $10,893.67
  • "B" is the grant in the RDSP minus all the grant that is part of the assistance holdback amount at that particular time, so $16,000 and
  • "C" is the fair market value minus the assistance holdback amount, so $261,448

The result is a grant portion amount of $666.67.

6.5 Earnings portion of the LDAP

The earnings portion must be calculated. Applying the "A" minus "B" minus "C" minus "D" formula, where:

  • "A" is the LDAP amount, so $10,893.67
  • "B" is the contribution portion or the non-taxable portion, so $8,333.34
  • "C" is the grant portion, so $666.67 and
  • "D" is the bond portion, so $0

The result is an earnings portion amount of $1,893.66.

So to summarize, the LDAP will be made up of $8,333.34 in contributions, $666.67 in grant and $1,893.66 in earnings.

6.6 Automated calculations

As you can see, DAP and LDAP calculations are quite complex. Normally, you don’t have to do these calculations manually as they are usually automated by your system. For more concrete examples on how calculate DAPs and LDAPs, see chapter 2-2 of the RDSP provider user guide or contact the Canada Revenue Agency.

7. Check your understanding

Question 1:

What is the absolute latest date that a lifetime disability assistance payment must begin?

December 31 of the calendar year in which the beneficiary turns:

  1. 49 years of age
  2. 59 years of age
  3. 60 years of age
  4. 65 years of age
Answer:
  1. 60 years of age

Question 2:

A lifetime disability assistance payment (LDAP) cannot be made from a plan if the fair market value of the plan, after the payment, will be less than the assistance holdback amount.

  1. true
  2. false
Answer:
  1. true

Question 3:

Choose all the portions of a payment that are taxable.

  1. contributions
  2. grant
  3. bond
  4. earnings
  5. rollovers
Answer:

b) grant, c) bond, d) earnings and e) rollovers

Question 4:

A disability assistance payment (DAP) is requested from a regular RDSP in which there is grant and bond that is less than 10 years old. Will there be a repayment of grant and bond to the Government of Canada?

  1. yes
  2. no
Answer:
  1. yes

Question 5:

In the lifetime disability assistance payment formula, the “A” represents the fair market value of the plan on which date?

  1. the day of the payment
  2. the first day of the month in which the payment is requested
  3. January 1 of the calendar year
Answer:
  1. January 1 of the calendar year

Question 6:

Can a disability assistance payment be made to a beneficiary’s estate?

  1. yes
  2. no
Answer:
  1. yes

Question 7:

Choose all that apply. A lifetime disability assistance payment must continue until:

  1. the beneficiary's death
  2. there is no more grant and bond in the plan
  3. the plan is terminated
  4. December 31 of the calendar year in which the beneficiary turns 60
Answer:

a) the beneficiary’s death and c) the plan is terminated

Question 8:

What is the minimum length of time the grant and the bond must have been in a Specified Disability Savings Plan before it can be paid out?

  1. 2 years
  2. 5 years
  3. 7 years
  4. 10 years
  5. no minimum amount of time
Answer:
  1. no minimum amount of time

Question 9:

When is the PGAP and non-PGAP designation established for a plan?

  1. the date of the payment
  2. January 1 of each calendar year
  3. the first day of the month in which the payment is made
  4. the end of the previous calendar year
Answer:
  1. January 1 of each calendar year

Question 10:

If the beneficiary turns 59 years old on August 4, 2034, what is the absolute latest date that he must begin receiving his LDAPs?

  1. December 31, 2034
  2. August 4, 2035
  3. December 31, 2035
  4. August 4, 2040
  5. December 31, 2040
Answer:
  1. December 31, 2035

Question 11:

When an RDSP is designated as a Specified Disability Savings Plan, what is the latest date that the payments must begin?

Dec. 31 of the year:

  1. the RDSP is designated as a SDSP
  2. following the year the RDSP is designated as an SDSP
  3. the beneficiary turns 60 years of age
  4. the beneficiary turns 65 years of age
Answer:
  1. Dec. 31 of the year following the year the RDSP is designated as an SDSP

Question 12:

Using the tables in InfoCapsule 21, what is the maximum amount payable for a PGAP RSDP in a regular year, for a 37 year old beneficiary requesting a DAP?

  1. the greater of the formula result and 10% of the RDSP’s fair market value at the beginning of the year (excluding annuities) plus any annuity payments that will be made in the year
  2. the formula result
  3. no maximum
  4. $1
Answer:
  1. the greater of the formula result and 10% of the RDSP’s fair market value at the beginning of the year (excluding annuities) plus any annuity payments that will be made in the year

Question 13:

Using the tables in InfoCapsule 21, what is the minimum amount payable for a non-PGAP RSDP in a regular year, for a 63 year old beneficiary requesting a LDAP?

  1. $1
  2. no minimum
  3. $100
  4. formula result
Answer:
  1. formula result

Question 14:

Using the tables in InfoCapsule 21, what is the minimum amount payable for a Specified Disability Savings Plan, for a 52 year old beneficiary requesting a LDAP?

  1. $1
  2. no minimum
  3. $100
  4. formula result
Answer:
  1. formula result

Question 15:

A disability assistance payment in the amount of $10,000 is requested from a plan which has a fair market value of $15,000 and an assistance holdback amount of $10,000. How much will be permitted to be taken out of the plan if the $10,000 is within the minimum and maximum requirements?

  1. $5,000
  2. $10,000
  3. $15,000
  4. $25,000
Answer:
  1. $5,000

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