Tax payable on non-qualified investment
A tax is payable for a calendar year in which the trust of an RDSP acquires property that is not a qualified investment, or, the property within the RDSP becomes a non-qualified investment.
The issuer of an RDSP must minimize the possibility that a trust governed by the plan holds a non-qualified investment. If the issuer fails to comply with this obligation, the issuer is liable to a penalty. After March 22, 2017, the issuer will also be required to notify the holder of the RDSP before March of a calendar year, if at any time in the preceding year the RDSP trust acquired or began to hold a non-qualified investment.
Amount of tax payable
The amount of tax payable for a non-qualified investment is:
- for property acquired that is a non-qualified investment, 50% of the FMV of the property when it was acquired
- for property that ceased to be a qualified investment, 50% of the FMV of the property immediately before it stopped being a qualified investment for the trust
Each person who is a holder of an RDSP is jointly liable for the tax.
Each person who is a holder is also liable for the 100% advantage tax on specified non-qualified investment income if this income is not withdrawn promptly.
Income earned and capital gains realized by an RDSP trust on non-qualified investments will continue to be taxable to the trust, regardless of when the investment was acquired. If an investment is both a non-qualified investment and a prohibited investment, it is treated as a prohibited investment only and the trust is not subject to tax on the investment earnings.
Payment of tax
If the RDSP holder is liable for tax on non-qualified investments for transactions on or before March 22, 2017, the holder must file Form RC4532, Individual Tax Return for Registered Disability Savings Plan (RDSP), with a payment for any balance no later than 90 days following the end of the calendar year. If the RDSP holder is liable for taxes on non-qualified investments for RDSP transactions occurring after March 22, 2017, the holder files Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs, with a payment for any balance due no later than June 30 following the end of the calendar year.
Refund of tax
If the RDSP trust disposes of the non-qualified investment before the end of the calendar year following the calendar year in which the tax arose, the persons who are liable for the tax may be entitled to a refund of the lesser of:
- the amount of the tax paid
- the proceeds of disposition of the property
However, no refund will be issued if it is reasonable to expect that those persons knew or should have known, when the property was acquired by the RDSP trust, that the property was, or would become, a non-qualified investment.
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