Tax credits for those in need

SUSAN J. KATZ

The vision that all people with disabilities should have a financially secure future is becoming a reality in Canada with the government's introduction of the national Registered Disability Savings Plan (RDSP) on Dec. 1.

With this new form of registered savings plan, people with disabilities, their parents and supporters can contribute to a tax-sheltered savings plan that will provide the beneficiary financial security, thereby improving their quality of life while allowing people to determine how best to spend their money without the restrictions of trusts or other types of plans.

The deadline for 2008 contributions has been extended to March 2, so there is still time to invest for this tax year. To be eligible for the RDSP, the beneficiary must receive the disability tax credit, be a Canadian resident, have a valid social insurance number and be under the age of 60.

In addition to contributions by people authorized by the beneficiary, the federal government also contributes in the form of a Canada Disability Savings Grant (CDSG) and a Canada Disability Savings Bond (CDSB).

To be eligible for the CDSG and CDSB, the beneficiary must be under the age of 50 and have filed an income tax return for two years prior and continue filing regardless of income. If the beneficiary is a child, the Canada child tax credit must be applied for.

An RDSP must be set up by the parents or guardians of a child. An adult, however, must be the holder of the plan, unless they are not legally competent, then other legal representatives are chosen on a basis that differs by province. In British Columbia, for example, this could be a legal representative.

Anyone authorized by the beneficiary can contribute to the plan, which has a $200,000 lifetime limit and no annual limit. The last contributions have to be by the end of the year in which the person turns 59. Instead of a tax deduction for contributions, the plan receives the CDSG and CDSB.

Currently, RRSP monies cannot be rolled over into an RDSP but, according to Jack Styan, executive director of the Planned Lifetime Advocacy Network (PLAN), the federal government has promised that the rollover will eventually be allowed, although it is not part of this year's plan.

The grants and bonds are based on personal or family net-adjusted income. The maximum for the grant is for incomes less than $75,769 and would be $3,500 per year. The maximum for the bond is $1,000 per year for an annual income of up to $20,000. Both can only be received until the end of the year in which the person turns 49.

There are two forms of payouts, the lifetime disability assistance payments (LDAP) and the disability assistance payments (DAP). The LDAP is an annuity based on life expectancy with no lump sum withdrawals allowed. The DAP is for plans in which contributions have exceeded the government's and has no withdrawal formula, the only requirement for withdrawals being that the plan must retain enough assets to cover the amount of bond and grant received in the last 10 years.

Withdrawals are bound by a "10-year rule": if withdrawals are made before 10 years have passed since last receiving the bond or grant, those must be paid back to the government. Hence, the government's contribution of the CDSG and CDSB end at age 50, and the mandatory end of all contributions is at age 60.

What are the beneficial federal implications? An RDSP will not impact Old Age Security, the Guaranteed Income Supplement, Canadian Pension Plan or GST benefit payments.

The beneficial B.C. provincial implications are that the RDSP is exempt as an asset or income in the determination of disability benefits.

The RDSP is so new that many people contacted in the Jewish community for an interview who might benefit from an RDSP didn't know about them. PLAN (www.plan.ca) is the organization that worked with the government for the last 10 years to create the RDSP. PLAN provides advice, education and support for the multidimensional needs of people with disabilities and has its own information website that is constantly updated with the latest news and facts about RDSPs: www.rdsp.com.

Martha Barker learned about RDSPs from articles in various newspapers and through her membership in the B.C. Association for Community Living (BCACL). Barker said that, before the RDSP, they had trusts set up for their son, Joe, but almost lost his disability payments because of an error that made his trust payouts too high. "Lots of people set up trusts, and could lose their money. And you have to pay fees to set them up and to a trustee to maintain them," she said. Barker added, "People aren't aware that everything ends after age 18 or 19 when there are school-age benefits; then there is suddenly nothing. People are on their own for support and, unless they have an emergency, there is no help. I worry, because one of our friend's parents both died young and the parents had been doing everything themselves. People need to get something set up."

Where to get an RDSP account set up is another question. On Dec. 22, 2008, the Bank of Montreal became the first national bank to offer the RDSP, and the Royal Bank has plans to offer it in mid-February 2009.

Almost everyone interviewed, though, had different information. One person was told by CIBC that they would set one up for them, while other institutions attempted to divert their attention away from RDSPs towards the new tax-free accounts.

According to Doug Brodhead of PLAN, the best source of information is not branch employees, even at BMO, but from BMO's central investment line (1-800-665-7700), as new programs like this take time for branch staff to be fully informed and trained. "We'll be doing some campaigns with the public for awareness. We're optimistic about that. Our goal is to reach as many Canadians as possible. There are about 500,000 who are affected," said Brodhead.

Another informant deciding whether to pay for a trust with a trustee or rely on their child's ability to competently make withdrawals from an RDSP on their own said, "Kudos for PLAN because they've been wonderful. This is a great breakthrough for people with disabilities because of the provincial tax exemptions and no clawbacks. It really levels the playing field. It will do a lot for parents who will know their children are taken care of. They can sit back and rest assured knowing, when they are gone, what will happen to their child."

The concerns of beneficiaries were echoed in another informant's words: "[My son] does not know very much about the RDSP. What he does know is that he is fearful for the future and for the money he might not have to help him maintain a good quality of life (especially when his parents will no longer be around)."

The information on PLAN's website is exceptionally well-laid out and clear. You can plug in figures in a downloadable RDSP calculator and create graphs for how your investment will mature. Brodhead said, "Our organization is family-driven, and our information is not 'fluffy.'"

Susan J. Katz is a Vancouver freelance writer.

^TOP