RDSPs: Year End Planning News

If you have a client who has a Registered Disability Saving Plan and is receiving disability assistance payments from the plan, a portion of these payments will be shown in Box 131 of a T4A slip and added to income on the 2013 return.

Beneficiaries must start to withdraw funds from the RDSP in the year he or she turns 60. Payments will be excluded from net income for the purposes of calculating an OAS clawback. 

There are a number of recent changes to RDSP withdrawals that should be noted before your clients tap into these plans:

• Grant and Bond Repayments. For withdrawals from RDSPs after 2013, the “10-Year Replacement Rule” will be replaced with a “Proportional Repayment Rule”. Under the new rule, the repayment amount will be the lesser of the amount removed x 3 and the amount of the CDSG and CDSB amounts received in the past ten years. You will therefore want to carefully consider making a small withdrawal in these cases.
   
• Disability Payments to Increase. For withdrawals made after 2013, the maximum Lifetime Disability Assistance Payment (LDAP) will be increased.
   
• Rollovers from Other Plans. Beginning in 2014, it will be possible to rollover both RESP and RRSP balances into RDSPs. Withdrawals of rolled over RESPs will be taxable.
   
• Termination of RDSPs when Beneficiary No Longer Disabled. Beginning in 2014, when this happens, the beneficiary may make an election to continue the plan for up to four calendar years after the end of the calendar year in which the beneficiary ceases to be eligible for the Disability Amount.
   
• Catch Up Grants and Bonds. When an RDSP is opened, Canada Disability Savings Grant (CDSG) and Bond (CDSB) entitlements will be calculated for the 10 years prior to the opening date (but after 2008) based on the beneficiary’s family income in those years. Here’s an example:

Loretta was born in 2000 with a disability that qualifies for the disability amount. In 2013, her parents opened a Registered Disability Savings Plan (RDSP) for her with a deposit of $10,000. 

Loretta’s family income for years 2008 to 2012 was:
2008: $45,000;
2009: $48,000;
2010: $52,000;
2013: $88,000. 

How much CDSG and CDSB will be paid in respect of this $10,000 deposit?

Answer

Had the deposit been made in 2008-2012, the CEGS and CDSB entitlements would begin in the year that the deposit was made. However, the deposit in 2013 will qualify for CDSG and CDSB entitlements from 2008 to 2010.

For 2008:
CDSG entitlement: $3,500 (based on the first $1,000 deposit made)
CDSB entitlement: $0 (because family income exceeds $20,000 maximum for 2008)

For 2009:
CDSG entitlement: $3,500 (based on the first $1,000 deposit made)
CDSB entitlement: $0 (because family income exceeds $21,816 maximum for 2009)

For 2010:
CDSG entitlement: $3,500 (based on the first $1,000 deposit made)
CDSB entitlement: $0 (because family income exceeds $21,947 maximum for 2010)

At this point the annual maximum for catch-up grants is reached. Entitlements for 2011 and 2012 could be received if an additional deposit is made in a future year.

For 2013:
CDSG entitlement: $1,000 because family net income exceeds $87,123.

Total CDSG = $3,500 + $3,500 + $3,500 + $1,000 = $11,500.
Total CDSB = $0  because family net income was too high in all years.