Tax deduction at source
Tax deduction at source
RDSP issuers have to withhold income tax at source once the taxable portion of a beneficiary’s DAPs and LDAPs exceed the total of the two non-refundable tax credits (NRTCs), the basic personal amount (BPA) and the disability amount (DA).
NRTCs help to reduce a taxpayer’s total income tax liability at the end of the year. There are many federal and provincial NRTCs that individuals may be eligible to claim when filing their personal income tax and benefit returns. However, only the federal BPA ($11,809 in 2018) and federal DA ($8,235 in 2018) will be used to calculate the taxable income from which to withhold income tax at source. This is because all RDSP beneficiaries are eligible for these two NRTCs.
Using the chart on this page, with the 2018 tax year for example, a beneficiary can receive up to $20,044 (BPA of $11,809 + DA of $8,235) in taxable DAPs and LDAPs before the RDSP issuer has to withhold income tax at source. For the 2017 tax year, this amount was $19,748.
| Year | 2018 | 2017 |
|---|---|---|
| Federal Basic Personal Amount (BPA) | $11,809 | $11,635 |
| Federal Disability Amount (DA) | $8,235 | $8,113 |
| Total | $20,044 | $19,748 |
Once this amount is reached, income tax must be deducted from the taxable portion of all remaining payments in the year using the lump-sum tax withholding rate displayed below.
Note
NRTCs are adjusted annually to allow for inflation and other factors.
The taxable portion of a beneficiary’s DAPs and LDAPs are the total of:
- the Canada disability savings grants
- the Canada disability savings bonds
- the investment income earned in the plan, such as interest
- proceeds from rollovers of other plans (RRSPs or RESPs for example)
Note
Individual or private contributions, or an amount in respect of which a holder of the plan pays the advantage tax (unless this tax is waived, cancelled or refunded, or has previously been included in the non-taxable portion of a DAP made to the beneficiary) are not taxable.
RDSP issuers will use the lump-sum withholding rate that corresponds to the:
- total taxable portion of all LDAPs expected to be paid in the year
- taxable portion of each individual DAP when requested
The lump-sum withholding rates are:
- 10% (5% for Quebec) on amounts up to and including $5,000
- 20% (10% for Quebec) on amounts over $5,000, and up to $15,000
- 30% (15% for Quebec) on amounts over $15,000
Note
Example (LDAP)
Joey received an LDAP of $3,500 per month from his RDSP in 2018 or $42,000 ($3,500 x 12) for the year. The taxable portion of each monthly LDAP was $2,000 for a yearly total of $24,000 ($2,000 x 12). The lump-sum withholding rate on $24,000 is 30%.
Joey’s RDSP issuer reduced the total BPA and DA ($20,044) by the taxable part of each LDAP as it was paid and by the end of September, $18,000 ($2,000 x 9) of the $20,044 had been used.
In October, his RDSP issuer reduced his LDAP of $2,044 ($20,044 - $18,000) by the taxable portion of his LDAP of $2,000 leaving $44 of the BPA and DA remaining to be used in November. No income tax was deducted for October.
Joey had $586.80 in income tax deducted from his November LDAP, calculated as ({2,000 - 44} x 30%). The amount of income tax deducted in December is $600 ($2,000 x 30%).
In summary, in 2018, Joey received $42,000 in LDAPs and had $1,186.80 in income tax deducted (no income tax deducted in October, $586.80 for November and $600 in December.
Example (DAP)
Using the previous example, Joey received a DAP of $10,000 at the end of July. The taxable portion of that DAP was $6,000. The lump-sum withholding rate on $6,000 is 20%.
Remember that Joey’s RDSP issuer reduced the total BPA and DA ($20,044) by the taxable portion of each LDAP when they were paid.
For July, the BPA and DA remaining is $8,044 of which $2,000 is used for the LDAP and $6,000 is used for the DAP. After paying Joey his July LDAP, $20,000 ([$2,000 × 7] + $6,000) of the $20,044 had been used.
Since Joey’s remaining BPA and DA in July is $44 ($20,044 - $20,000) his RDSP issuer deducted no income tax.
Joey had $586.80 ($2,000 - $441) x 30%) in income tax deducted from his August LDAPs. From September to December, the income tax deducted from his LDAPs is $600 each month.
In summary, in 2018, Joey received $42,000 in LDAPs and had $2,986.80 in income tax deducted. He also received a DAP of $10,000 with no income tax deducted.
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