Registered disability savings plan
My name is Christine and I work at Employment and Social Development Canada. I'm here to talk to you about the Registered Disability Savings Plan.
I wanted to begin by explaining that this is a complex program so, please don't worry about understanding or remembering everything I say. Really, I'm just trying to give you a basic understanding of the RDSP and the bond and the grant, enough so that you can decide whether it's something you want to look into further.
If you do decide you want to look further into it, there are a lot of places where you can go to find out more, or even just to clarify something you hear today. You'll be provided with some sources of information at the end of the presentations today.
I want you to that what I'll be talking about during this part of the presentation so that you are aware of what to expect. That way, if a question comes to your mind, you'll know if it may be something I'll talk about later.
I'll be explaining what the RDSP is, how you can build up the savings, and then how to open one. After I'm done, my colleague Joumana will talk to you about taking money from an RDSP.
Also, I want to point out that I will be using the acronym RDSP throughout my presentation, rather than calling it the Registered Disability Savings Plan in its long form.
An RDSP is basically a savings vehicle to help plan the long-term financial security of someone who has a severe and prolonged impairment in physical or mental functions.
I will explain how the Government contributes to your RDSP later in this presentation, but at this point it's important to know that, like any savings vehicle, especially long-term ones like the RDSP, the earlier you open it, the more your savings will grow.
The beneficiary is the person with the disability, whose financial security we are talking about now.
The RDSP must be opened by the end of the calendar year in which that person turns 59 years old.
As you can see, the beneficiary has to be a Canadian resident and have a Social Insurance Number. They also have to be eligible for the Disability Tax Credit, which Kelly explained earlier.
The person who opens the RDSP is called the holder.
If the beneficiary has reached the age of majority, they might be the holder of their own RDSP.
However, if there is a guardian, legal representative, or public department responsible for that adult, they could be the holder.
If a dependant adult does not have a legal representative but there are concerns about his or her ability to enter into a contract, a qualifying family member can be the holder and open an RDSP on his or her behalf. .
A qualifying family member can be a spouse, common-law partner or parent. This option is available until 2016.
If the beneficiary is under the age of majority, the holder can be a legal parent who is the primary caregiver, or a legal representative or public department.
Now, I'm going to tell you about a couple of ways you can really get those savings growing fast.
One of the ways the Government can help you get those savings growing fast is the Canada Disability Savings Bond, what we simply call the bond.
The bond is money that the Government puts into the RDSPs of low to modest income beneficiaries, up to $1,000 per year into the RDSP, up to $20,000 over the lifetime of that beneficiary. Now, this is key: you do not have to have money to put into the RDSP to get the bond.
We often hear people say that they don't have anything to put into an RDSP so why bother.
Well, if the beneficiary's family income is low to modest - and I'll explain what we mean by low to modest income in just a second - then the Government might put up to $1,000 into that RDSP even without you putting anything in first.
It gets better, believe it or not. As of 2011, if the beneficiary was eligible in previous years, we can even go back up to 10 years and get them those bonds.
We can't go further back than 2008 when the program was created, and still can't go over the $20,000 limit, but I just wanted to be clear that you can go back like that.
Now one last reminder: the bonds are only available if you apply for them before the end of the year that the beneficiary turns 49 years old.
So, what does low to modest income look like. How much money does the beneficiary's family have to earn to get the whole $1,000?
Well, to give you an idea, in 2013, the low income mark, what we call income thresholds, was $25,356. So, in the example showing here on this slide, Jane's family income is $24,910, so she would be eligible to receive the whole $1,000.
For the record, it's not in this example, but modest income in 2013 was between that $25,356 and $43,561. That means a beneficiary whose family income was between those two amounts would be eligible for at least a portion of that $1,000.
Again, that is money put into the RDSP with no personal contribution required.
The other way the Government can help you grow those savings is the Canada Disability Savings Grant, what we call the grant.
At this point, I want to be clear that a beneficiary can get both bonds and grants. It's not one or the other, it can be both.
So, the grant is a bit different than the bond because you have to put money into the RDSP to get grant money. We call money that someone deposits into an RDSP a contribution.
The amount of grant money put into the RDSP also depends on the beneficiary's income level, which I'll get into again on the next slide.
Basically, though, I want to point out that the Government could put up to three times what someone puts into that RDSP, up to $3,500 per year, up to $70,000 over the beneficiary's lifetime.
Like the bond, we can go back up to 10 years if the beneficiary was eligible and you can only get grant on money put into the plan before the end of the calendar year that the beneficiary turns 49.
By the way, in case you are wondering, bond and grant entitlements are based on the beneficiary's family income, so to get as much bond and grant as possible, make sure you have filed your income tax returns so your income information is up-to-date with the CRA.
So here's an example of how the grant works.
Remember Jane, with the family income of $24,910, who got the $1,000 of bond. Well, here her mother puts $1,000 into Jane's RDSP.
Since Jane's family income is under $87,123, the Government will put $3 in for every dollar put in, up to the first $500, and $2 for every dollar beyond $500 up to $1,000. In this case, then, we would see $3 of grant money for each $1 put in based on the first $500, so $1,500, plus another $1,000, based on $2 for each of the other $500 that Jane's mother put in. In other words, Jane's mom put in $1,000, so the government put in another $2,500. Think about that for a second – that's a 250% return on Jane's mom's investment in her daughter's future.
Again, although it's not in this example, even beneficiaries whose family income is high, like the $87,123 in 2013, they would still get a dollar put into that RDSP for every dollar they put in, up to $1,000.
These income thresholds are also for 2013.
Now, let's put it all together:
So Jane gets a $1,000 of bond money put into her RDSP.
Her mother puts in a $1,000 and we put in another $2,500 of grant money.
In the end, with only $1,000 that her mother deposited into the RDSP, there is now $4,500 in it.
So, you can see why we are encouraging people to look into this.
Now in terms of the personal contributions like Jane's mother made, remember that anyone can put money into that RDSP with the holder's permission.
In total, there can be up to $200,000 of personal contributions made into an RDSP. That doesn't count the bonds and grant, by the way.
Money can be put into the RDSP until the end of the calendar year that the beneficiary turns 59.
So, we often hear that people assume they'll lose their other benefits if they have an RDSP. Please do not assume so.
Having an RDSP or taking money out of an RDSP has no impact on federal benefits such as the Child Tax Benefit, the Goods and Services / Harmonized Sales Tax Credit, Old Age Security and Employment Insurance.
In most provinces and territories having an RDSP or taking money out of an RDSP will not affect your social income benefits.
All provinces and territories have at least partially excluded RDSP from calculations, and in most cases they have actually FULLY exempted it.
Again, I won't go farther into this today, but if you're wondering about your provincial or territorial benefits, please contact your provincial or territorial government. If you have a case worker, give them a call and ask the questions. We want to make sure you are making your decision on whether to open an RDSP based on the right information.
So now you've decided to open an RDSP and want to know what to do next.
Well, first you apply for the Disability Tax Credit. Kelly explained the DTC earlier, so I won't talk about it again here.
Once you have confirmation of the beneficiary's eligibility for the DTC, call a participating financial organization and find out what information you need before you go in person. You can find out the central RDSP contact number for the financial organizations from our website.
Really, I can't stress this enough. To make sure you get to talk to an RDSP specialist, please call a participating financial organization first.
There's one little thing I want to say at this point. Remember that the beneficiary is only eligible for bonds and grants until the end of the year they turn 49? Well, if the beneficiary is in their late 40s, you may want to consider opening a plan before you get the CRA's answer. This will ensure that bonds and grants can be available to that beneficiary if they are approved for the DTC.
Call a participating financial organization and ask about opening the plan right away.
In a minute, Joumana is going to talk to you about how withdrawals from the RDSP work, but I need to explain a bit about it first.
As Joumana will mention you can take money out of the RDSP at any point, and the money goes to the beneficiary. However, money has to start going out every year beginning in the year that the beneficiary turns 60.
However, you need to know something if you do take money out of the RDSP before the last bond and grant paid into it has been in there for 10 years: some or all of the bond and grant money will have to be returned. That's why we continue to remind you that the RDSP is a long-term savings vehicle.
Lastly, I also have to mention that if the plan is closed for some reason, or if the beneficiary loses their DTC eligibility or dies and so the plan must be closed, all bond or grant money paid into the RDSP within the ten years before the plan is closed must be returned to the Government.
However, beginning in 2014, if the beneficiary loses their eligibility for the DTC temporarily, in other words it is expected that they will be eligible for it again, you can request that the plan remain open for up to 5 years. Again, you can find out more about this on our websites and by contacting us or a participating financial organization.
Hello my name is Joumana. I work for the Canada Revenue Agency. Today I will be presenting the part of the webinar about withdrawing money and income tax withholding on your RDSP payments.
Earlier, Christine talked about the program requirements about how to open an RDSP and who can contribute to it.
In this part of the webinar I will discuss the types of payments made from an RDSP.
There are 2 types of payments that you can withdraw from your RDSP:
A lifetime disability assistance payment, referred to as LDAP, and a disability assistance payment, referred to as DAP.
An LDAP is a payment that once it is paid it must continue to be paid at least each year or until the beneficiary passes away or the plan is terminated. Payments must begin by the end of the calendar year when the beneficiary turns 60. These payments are sometimes referred to as continuous payments.
A DAP is a singular payment requested by the beneficiary on an ad-hoc or as needed basis. For example, you need to renovate your bathroom or buy yourself a new car - you can withdraw a DAP. It is also an amount that can be made to the beneficiary's estate because the beneficiary passed away.
These payments can be made separately or together during a calendar year. There are some conditions for withdrawing both types of payments at the same time. I invite you to visit the CRA's website for those conditions. I will give you the address at the end of the session.
When you receive an LDAP or a DAP, part of each payment is taxable. The part of the payments that contain the:
- Canada Disability Savings Grant;
- Canada Disability Savings Bond; and
- Investment earned in the plan
However, the contributions you or others put into your RDSP are not taxable.
You cannot ask for a specific amount for each type of contribution; each LDAP or DAP payment may include all of the contribution amounts.
Your financial institution keeps track of these payments. Therefore, when you receive a payment it will be a blend of all four contributions; the bonds, the grants, the earned investment as well as your contributions.
When you withdraw amounts during the year, your financial institution will report the taxable part on your T4A slip. They will send you a copy and when you receive your T4A slip you must include the amount shown on the slip as income on your personal income tax and benefit return. You will pay taxes owing at the end of the year.
There will be changes in 2014. For those of you receiving or continue to receive payments from an RDSP, under the proposed changes starting in 2014, financial institutions will withhold income tax at source on the taxable part of your LDAP and DAP payments. Financial institutions have been informed of this requirement.
Before the financial institutions apply the withholding rate, they will reduce the taxable part of your payment by applying two tax credits. These credits will be explained to you in the following slide.
I would also like to inform of another upcoming change in 2014. That is your financial institution will report your RDSP income as well as the income tax deducted on your T4A slip.
So, when you receive the slip, you will include the RDSP income and the income tax withheld at source when you file your income tax return.
There are advantages of having income tax withheld at source; that is, your income tax will be paid in advance. This will reduce the need for you to make a payment when you file your income tax return at the end of the year.
Based on the proposed changes, before the Financial Institutions apply the withholding at source, beneficiaries can benefit from two tax credits.
The two tax credits you will receive are the basic personal amount and the disability amount. In 2014, the basic personal amount will be $11,138 and the disability amount will be $7,766. The total of both credits is $18,904.
This means that in 2014, you can withdraw $18,904 in taxable amounts from your RDSP before your financial institution deducts income tax at source.
You can only receive these tax credits once a year.
The amount of the tax credits will change each year.
The financial institution will withhold at source based on the current tax rates.
Let's take a look at how your financial institution will determine the tax rate based on your payments. Before, let's recap what are the taxable withdrawals: they are the bonds, the grants and the earned investment.
Under the proposed changes, starting in 2014, the financial institutions will apply the tax rates of 10%, 20%, and 30%. These rates include the federal and provincial portions except in the province of Quebec.
The rates of 5%, 10% and 15% are the federal tax rates in Quebec. If you reside in Quebec please contact Revenue Quebec to find out the provincial rates to be applied on the RDSP amounts.
Now, to determine the withholding rate for LDAPs, which are continuous payments, your financial institution will deduct income tax from the total taxable amounts withdrawn during the year. This means that if your taxable amount is greater than $18,904 your tax rate will be 30%. If you withdrawn a taxable amount of less than $18,904 there will no withholding of income tax at source.
Now, to determine the withholding rate for DAPs, which are singular amounts on an ad-hoc basis, it is the individual payment that will determine the tax rate that your financial institution will use. For example, if you ask for a DAP of $7,000 and $4,000 is the taxable portion, your financial institution will deduct 10%.
To apply the withholding rate on your payments, the financial institution will use the following standard calculcation.
Again, under the proposed changes, starting in 2014 your financial institution will only deduct income tax at source once the taxable withdrawals exceed $18,904.
This standard calculation will apply on the payments made at a later date. Your financial institution will monitor these payments every month and apply the withholding on a gradual scale.
The CRA consulted associations representing individuals with disabilities on these proposed regulations and they have expressed concerns that having income tax deducted on later payments in the year may cause you hardship.
To address these concerns, the CRA has offered the financial institution an optional calculation to help you manage your finances and that is to withhold income tax on every payment.
Using this calculation, your financial institution will be able to deduct income tax from every payment. This means that you can receive payments that are consistent and predictable during the year.
However, this option is only available to beneficiaries who tell their financial institutions of their payment schedule at the beginning of the year and do not change it.
If you change the schedule and the payment amount, the financial institution will revert back to using the standard calculation.
If you want more information about this optional calculation, we invite you to talk to your financial institution.
Now, let's do a quick review of the changes coming in 2014.
The bonds, the grants, and the earned investment will be taxed when they are withdrawn; your individual contributions will not be.
Your financial institution will deduct income taxes on these “taxable” withdrawals using the tax rates of 10%, 20% or 30% except in the province of Quebec.
You will receive a T4A slip at the end of the year that shows you your taxable income as well as the income tax deducted.
You will use both of these amounts when you file your personal income tax return.
In closing, your financial institution has a very big job to do. Work closely with them and give them lots of notice if you are going to make any changes to your withdrawal schedule.
For general information please call 1-800-Ocanada; that is 1-800-622-6232. You can also visit the CRA's website at www.cra.gc.ca/rdsp or you can call the CRA's individual inquiries line at 1-800-959-8281 and for those of you using the TTY service, please call 1-800-665-0354.
For questions about the bonds and the grants, you can go to the following website: www.hrsdc.gc.ca/disabilitysavings, or you can contact your financial institution.
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