Registered Disability Savings Plan

A registered disability savings plan (RDSP) is intended to provide for the long-term financial security of a beneficiary who has a prolonged and severe physical or mental impairment.

Contributions to the RDSP can be made to the plan by the beneficiary, by his or her parents or family members, or by other authorized contributors. Contributions are not tax deductible. However, the earnings generated on contributions are tax-exempt while they stay in the plan. When earnings are withdrawn as part of a disability assistance payment, they are taxable in the hands of the beneficiary.

To qualify as a beneficiary of an RDSP, the individual must be eligible for the disability tax credit. It makes sense to claim this tax credit even for children or those with no income as the credit can be transferred to a parent, spouse, or supporting individual.

For qualifying individuals, Canada disability savings grants (CDSG) and Canada disability savings bonds (CDSB) are available to supplement the RDSP. CDSG and CDSB are available until the end of the year the beneficiary turns 49; the former are subject to a lifetime limit of $70,000 and the latter are limited to $20,000 per RDSP beneficiary. Low income earners can also receive up to $1,000 in CDSB a year to a lifetime maximum of $20,000 per RDSP beneficiary without having to make an RDSP contribution. Note that the level of matching grant is dependent on the family net income (for a child), but once over age 18, it is the disabled adult's net income (combined with their spouse) that is considered, and even high income families can receive up $1,000 of CDSG per year.

Thus, if there is a contribution of $1,500 into the plan each year, the plan can receive as much as $4,500 of federal government contribution. The plan has become $6,000 with a $1,500 contribution from the family. The deadline for contributions is December 31st each year.

Up to $200,000 can be contributed to a RDSP in a lifetime, up to the end of the year the RDSP beneficiary reaches age 59.

As of January 2011, you are allowed to carry forward unused grant and bond entitlements for a 10-year period preceding the opening of the plan.

As of July 2011, the proceeds from a deceased parent's or grandparent's Registered Retirement Savings Plan, Registered Retirement Income Fund and Registered Pension Plan can be rolled over into the RDSP of a financially dependent child or grandchild with a disability.

Disclaimer: Information on this page is current as of 2009. Tax rules and interpretations subject to change.