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)
- 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 maximum BPA $13,229 and federal DA ($8,576 in 2020) 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 2020 tax year for example, a beneficiary can receive up to $21,805 (BPA of $13,229 + DA of $8,576) in taxable DAPs and LDAPs before the RDSP issuer has to withhold income tax at source. For the 2019 tax year, this amount was $20,485.
|Federal maximum Basic Personal Amount (BPA)||$13,229||$12,069|
|Federal Disability Amount (DA)||$8,576||$8,416|
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.
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)
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 either the:
- total taxable portion of all LDAPs expected to be paid in the year, or
- 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
The above rates are a blend of the federal and provincial rates. The Quebec rates represent only the federal rates. For more information on the provincial rates for the province of Quebec, go to Minister of revenue Québec.
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