Chapter 3. RDSP Registered Disability Savings Plan

3.1.1 Application process

A holder must:

• meet with a participating RDSP issuer
• open an RDSP
• name an eligible beneficiary

3.1.2 Eligibility criteria

The holder and participating RDSP issuer ensure that all eligibility criteria for the registration of the RDSP have been met.

3.1.3 RDSP contributions

The holder, or anyone with written permission from the plan holder, makes and authorizes contributions to the RDSP.

3.1.4 Grants and bonds

An application can be made by the holder to obtain the bond and matching grants.

3.1.5 Payments from an RDSP

Lump sum DAPs and LDAPs can only be made to the beneficiary, or to the beneficiary's estate. The identity of the beneficiary appears in the plan documentation.

3.1.6 When contributions must stop

Contributions can be made to an eligible beneficiary's RDSP until the earliest of:

• December 31 of the calendar year in which the beneficiary reaches 59 years of age
• the time when contributions to the plan (and any prior RDSP of the beneficiary) total $200,000
• the beneficiary's death

3.1.7 When contributions must stop temporarily

• Loss of DTC
• Non-residency

Contributions can begin after the beneficiary regains their DTC and residency.

3.1.8 RDSP lifespan

There is no specific time limit set out in legislation prescribing the date when an RDSP must be terminated. The Income Tax Act (ITA) sets out the circumstances when an RDSP must be closed. They include:

• RDSP non‑compliance
• beneficiary's death
• transfer
• voluntary RDSP termination

3.2.1 Eligibility

An RDSP can be established if:

• the beneficiary has a valid social insurance number (SIN)
• the holder has either a valid SIN or business number (BN)
• the beneficiary is approved for the DTC
• the beneficiary is a resident in Canada
• the beneficiary is 59 years old or younger at the end of the calendar year when the RDSP is opened

Note: This age limit is not applicable when a beneficiary's RDSP is opened as a result of a transfer of an RDSP from a previous issuer to a new issuer.

For an RDSP to be registered by the CRA, the following steps must be completed:

• the issuer must provide ESDC with accurate and complete information
• the social insurance registry (SIR) must validate the SINs of the beneficiary and the holder (or if the holder is an organization, its BN)
• the CRA must confirm and successfully validate the beneficiary's DTC approval and residency

3.2.2 Process to open an RDSP

There are 3 steps that a holder needs to follow to open an RDSP.

1. Choose an issuer: The holder chooses an issuer that offers the RDSP. A list of participating issuers can be found on the RDSP web page.
2. Provide the required information: The holder must provide the issuer with all relevant information concerning themselves, along with the required information on the beneficiary of the RDSP.
3. Make a contribution (optional): The holder, or anyone with written permission from the RDSP holder, may contribute to an RDSP. Contributions are made in trust to the issuer and will be invested, used, or applied by the issuer to make funds available for use by the beneficiary. Contributions are not required to attract the bond.

3.3.1 Contractual competency

Common-law presumes that a person is competent to enter a contract once they have attained the age of majority. It can be difficult to determine whether a person lacks the capacity to enter a contract as there may be medical or legal considerations. Also, the standards for capacity and competence are not the same in all provinces and territories. When doubt exists, legal or medical advice should be sought.

Under current rules, when an RDSP is established for a beneficiary who has reached the age of majority, the plan holder must be the beneficiary. If the beneficiary lacks the capacity to enter a contract, the plan holder must be the beneficiary's guardian or other legal representative.

However, several adults with disabilities have experienced difficulties in establishing a plan, because their capacity to enter into a contract is in doubt. Questions of appropriate legal representation in these cases are a matter of provincial and territorial responsibility. In some provinces and territories, the only way that an RDSP can be opened in these cases is for:

• the individual to be declared legally incompetent by a court or tribunal
• someone to be named as their legal guardian

That process can involve a considerable amount of time and expense and may have significant repercussions for the individual.

In 2012, the federal government introduced a temporary measure to allow qualifying family members (QFM) to become plan holders of the RDSP for an adult who might not be able to otherwise enter a contract.

In 2023, the federal government expanded the temporary measure to also allow adult siblings to become plan holders in such cases.

The QFM measure seeks to ensure that individuals who might not be contractually competent and who do not have a legal representative can still benefit from RDSPs.

3.3.2 Death of the beneficiary

In the event of the beneficiary's death, the RDSP must be closed no later than December 31 of the following calendar year.

3.4.1 Beneficiary reaches the age of majority

When the beneficiary of an RDSP reaches the age of majority in the province/territory where they reside, 1 of the following 2 situations will apply to the holder.

1. The RDSP holder is the legal parent:
   • the beneficiary may be added to the RDSP as a joint holder if the specimen plan of the issuer permits
   • in other cases, the beneficiary becomes the sole plan holder upon reaching the age of majority
   • they have the legal capacity to enter into a contract (the legal parent is allowed to stay on as the sole holder of the plan)
2. The RDSP holder is someone other than the legal parent:
   • the person or body must be removed as the holder of the plan
   • the beneficiary must be added as the holder
   • if the beneficiary is not contractually competent, the legal representative of the beneficiary such as a court-appointed guardian, can be the holder

3.4.2 QFM

For an adult who might not be contractually competent to enter into an RDSP, QFMs may become the holder of an RDSP if:

• the beneficiary has attained the age of majority and is not a beneficiary under another DSP
• there is no entity that is legally authorized to represent the beneficiary
• after reasonable inquiry, the issuer is of the opinion that the beneficiary's contractual competence to enter into a DSP contract is in doubt

3.4.3 Who can be a QFM

A QFM can be:

• a legal parent of the beneficiary
• a spouse or common-law partner of the beneficiary who is not living apart and separate from the beneficiary because of a breakdown of their marriage or common-law partnership
• an adult sibling of the beneficiary

A QFM ceases to be the plan holder and is replaced by either the beneficiary, or a qualifying person as defined in the ITA, section 146.4 when:

• the beneficiary is determined to be contractually competent or, in the issuer's opinion, after reasonable inquiry, the beneficiary's contractual competence to enter into an RDSP is no longer in doubt
• an entity is legally authorized to act on behalf of the beneficiary when:
  • the qualifying person must notify the issuer of its appointment
  • the QFM ceases to be the holder, and the qualifying person becomes the new holder

3.4.4 Issuer responsibility

If there is a dispute regarding the issuer's acceptance of a QFM as a plan holder, the holder is required to avoid actions that would reduce the fair market value (FMV) of the plan's property.

If it is determined that the RDSP beneficiary is contractually competent after entering into a DSP with a QFM, no legal action lies against an issuer.

3.4.5 Holder replacement

Over the lifetime of an RDSP and under certain conditions, the holder can change. If the plan holder (other than a QFM) ceases to be eligible, they must be replaced with someone who is eligible to be a holder. There must always be at least 1 holder.

For example:

If one of the beneficiaries' parents, is the plan holder, and they pass away: the beneficiary or their subsequent legal guardian must take on the role of the new plan holder in place of the deceased parent.

A new grant and bond application form is needed if the grant and bond are requested by the new holder.

If the new holder is not requesting grant and bond, there is no need to complete a form.

3.5.1 Contractual competency

Where a beneficiary has reached the age of majority and is not contractually competent, as determined by a medical doctor, the beneficiary's legal representative will be required to assume and carry out their contractual obligations.

Parental authority does not automatically provide the right to be a legal representative of a beneficiary who has reached the age of majority. This remains true whether the adult beneficiary is contractually competent or not.

Note: A temporary measure in which a QFM may become the holder for an adult beneficiary whose contractual competence may be in doubt was announced in Budget 2012. This measure will apply until December 31, 2026.

3.6.1 PCG’s

The PCG is:

• the individual who is eligible to receive the CCB and whose name appears on the CCB payment
• the department, agency or institution that receives the allowance payable under the Children’s Special Allowances Act

The information on the PCG is:

• used to verify approval for the DTC as well as residency
• used to verify family income
• required for contract registration purposes
• required for each grant and bond request submitted to ESDC
• required until the end of the calendar year the beneficiary turns 18

3.6.2 Shared custody

Parents that share the custody of a child can receive and share the CCB and credits for children throughout the year.

There could be 2 different income levels for a beneficiary aged 18 or under (1 for each PCG) for each month in the year. The Canada Disability Savings Program (CDSP) system will choose the income level that is the most advantageous for the beneficiary to determine the grant entitlements.

For more information on shared custody, refer to Chapter 9. RDSP Canada Disability Savings Grant and Chapter 10. RDSP Canada Disability Savings Bond.

3.7.1 Applying for a SIN

For more information:

• visit the Social insurance number webpage
• call 1-866-274-6627
• visit a Service Canada office with your original proof of identity documents to apply

3.8.1 Loss of DTC eligibility

In 2021, the federal government eliminated the requirements to close an RDSP and to repay the AHA when the beneficiary no longer qualifies for the DTC.

This means that during any period in which a beneficiary is not approved for the DTC, there is no longer a requirement for the beneficiary to provide a medical certification that the beneficiary is likely to become DTC approved at some point in the future.

While a beneficiary is no longer approved for the DTC, the operations of the RDSP are limited as follows:

• 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 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 not approved for the DTC
• Registered Retirement Savings Plan (RRSP)
• Registered Retirement Income Fund (RRIF)
• Registered pension plan (RPP)
• Pooled registered pension plans (PRPP)
• Specified pension plans (SPP) to the RDSP
• the beneficiary is not eligible to receive grants and bonds, nor will entitlements accrue during any period where the beneficiary remains not approved for the DTC
• withdrawals will be permitted but will trigger repayment of the AHA
• this requires repaying $3 in grant and bond for every $1 withdrawn from an RDSP, up to a maximum of the total AHA, over a modified period
• the AHA is calculated from grants and bonds deposited in the RDSP over the 10 years before the beneficiary loses DTC approval:
  • this is 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 AHA will be the 10-year period before the beneficiary loses DTC approval until the beginning of the year, they turn 51:
  • after that, it decreases by 1 year each subsequent year until it becomes nil at the beginning of the year the beneficiary turns 60

To ensure an option to close a plan continues to exist for beneficiaries who are not approved for the DTC, a plan holder will be allowed, at any time during which a beneficiary is not DTC approved, to request the closure of the RDSP of the beneficiary. For this type of closure, the sums remaining in the RDSP after repayment of the AHA to the Government of Canada will be paid to the beneficiary. The AHA will be modified to reduce by 1 year, for each year beginning the year that the beneficiary turns 51.

For more information, refer to Chapter 8. RDSP closing a Registered Disability Savings Plan.

Note: For further information on the DTC, contact the Canada Revenue Agency.

3.10.1 What is a contribution

Contributions are deposits made into an RDSP that become the property of its beneficiary. At the time the contribution is made, the beneficiary must be:

• a resident in Canada
• approved for the DTC
• 59 years of age or under as of December 31 of the year the contribution is made

Contributions to an RDSP can be made by:

• the holder(s)
• any entity or an individual with a written permission of the holder of the plan

Note: No contribution is permitted if the beneficiary has died. Contributions to RDSPs cannot be deducted from taxable income of the individual making the contribution. Contributions that are withdrawn (other than retirement savings rollovers and education savings rollovers) are not to be included as income of the beneficiary when paid out of an RDSP.

3.10.2 Contribution limits

There are no annual limits on the amount of contributions that can be made in respect of a beneficiary. However, the total contributions into any RDSP for the beneficiary must not exceed the lifetime limit of $200,000.

3.10.3 What is not considered a contribution

• Grant
• Bond
• Payments made by a designated provincial program
• Amounts transferred from another plan
• Earnings within the RDSP
• Retirement savings rollovers
• Education savings rollover

Note: A retirement savings rollover and an education savings rollover count as a contribution when determining if an RDSP is a primarily government assisted RDSP. They also count toward the $200,000 lifetime contribution limit.

3.10.4 Over contributions

When the total number of contributions deposited into an RDSP exceeds the lifetime limit, an overcontribution occurs. Issuers are required to ensure that contributions to an RDSP do not exceed this limit. An RDSP is considered noncompliant when contributions have exceeded the lifetime limit. Should this happen, it could result in the termination of the RDSP.

3.11.1 Investments

ESDC does not regulate the investment strategies and business practices of the issuers offering RDSPs. Consumers are encouraged to review all pertinent information before signing a contract.

Many of the institutions marketing RDSPs are regulated by provincial securities commissions. These commissions are responsible for administering securities laws and policies and protecting investors from improper investment practices or violations of securities law. At the federal level, the Financial Consumer Agency of Canada (FCAC) provides Canadians with information about their rights and responsibilities when dealing with issuers. The FCAC also ensures compliance with the federal consumer protection laws that apply to banks and federally incorporated trust, loan, and insurance companies.

Investments held in an RDSP must be qualified investments as per the ITA.

3.11.2 Fees

The issuer may charge fees for acting as an administrator and trustee of a plan. However, if fees are charged against funds within the plan, they must not be deducted from the AHA of the RDSP. For more information on the AHA, refer to Chapter 14. RDSP repaying the grant and bond.

3.11.3 Losses

The FMV of the RDSP is equal to the total of:

• accumulated earnings
• contributions
• rollovers from RRSP, RPP, RRIF, PRPP, SPP, RESP proceeds
• payments made by a designated provincial program
• the grant and bond amounts in the RDSP

Where the FMV is lower than the total of all these amounts, there is an investment loss. All investment losses are first attributed to accumulated earnings, then contributions and finally to retirement savings or education savings rollovers. When losses have reduced these amounts to nil, then the remaining losses (if any) are divided proportionally between the:

• grant account
• bond account
• amounts that represent payments from a designated provincial program to the RDSP

3.11.4 Bankruptcy

In the case of the bankruptcy of a beneficiary, refer to the Bankruptcy and Insolvency Act.