In March 2020 I spoke with Tom Drake at Maple Money about the DTC and RDSP. After some judicious editing Tom has published the Podcast here. As usual, you can read about the RDSP on my Registered Disability Savings Plan page.
For those unaware, there are a bunch of very smart folks that I use for research on this topic (my wife is a major contributor), and whenever I do one of these talks, I get a few things not quite right (and this is no difference). My source at ESDC (who is very patient and kind) points out a few of my fumbles: I mention that the program is 10 years old, it was started in 2008, so that is a 12 years in 2020.
RDSP and Bankruptcy
Doug Hoyes and I have discussed (on his Podcast) the topic of RDSPs and bankruptcy, but my source now states clearly:
“The Bankruptcy Act was changed last year through the Budget Implementation Act.‎ See 67(1)(b.3) of the Insolvency and Bankruptcy Act.”
ESDC Source
134 Paragraph 67(1)â€(b.â€3) of the Act is replaced by the following:(b.â€3) without restricting the generality of paragraph (b), property in a registered retirement savings plan, a registered retirement income fund or a registered disability savings plan, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy,
Bill C-97
RDSP After DTC Lost
If the beneficiary loses their Disability Tax Credit (DTC), it used to be that the RDSP had to be closed. I waffled around this one with Tom, but the actual answer is:
“As of Budget day 2019, a RDSP n‎o longer is required to be closed due to loss of DTC. During a period when the beneficiary in not DTC eligible no contributions can be made to the plan except for the rollover of funds from a RRSP of a deceased parent or grandparent upon whom the beneficiary was dependent. During a period of DTC eligibility, the beneficiary will not accumulate annual grant or bond entitlements. The Assistance Holdback Amount will be determined as the ten year period immediately prior to the beneficiary being DTC ineligible, and will remain that period until the end of the year the beneficiary turns 50. Each subsequent year the AHA will decrease by a year. (51-9 years, 52-8 years,… 59-1 year). The year the beneficiary turns 60, the AHA is nil. Should the benficiary requalify for the DTC, the plan will operate as normal.”
ESDC Source
So the money hangs around until the person turns 60 and then can be withdrawn, as Tom Drake pointed out should be the case.
Each time I talk about the Registered Disability Savings Plan and DTC, I learn more myself.
So here we are in Nov 2020 and there does not appear to be any more movement on solidifying this most recent change re: no longer needed to collapse an RDSP if DTC eligibility is lost.
Have you heard/read anything about if/when this will be fully implemented and no longer in limbo?
This was in the 2019 budget https://www.budget.gc.ca/2019/docs/tm-mf/si-is-en.html and that was passed, so it is now the law.
I think a few things are confusing me. First it was hearing from a financial support service specializing in special needs mention in a webinar hosted by p4p.ca that this was only provisional at this point. Then when looking at all the gov’t sites on RDSP, it still lists ALL the “old” rules prior to the 2019 budget, and only on ONE page that I found does it even make reference to changes from the 2019 budget BUT none of the pages have been updated to reflect the budget clauses.
Reading the budget info from your link, I see one statement:
“This measure will apply after 2020. An RDSP issuer will not, however, be required to close an RDSP on or after Budget Day and before 2021 solely because the RDSP beneficiary is no longer eligible for the DTC.”
Maybe the gov’t is waiting until 2021 before updating any of their site pages??
Where can definite info on this be confirmed?
I can check with my source, but as a government employee, it may be as simple as, no one has been in the office to update the web site.
I base my thesis on, when RDSPs were excluded from bankruptcies, it was in the budget. I asked my source about it, and was informed that as soon as the budget was passed that became law.
I will however check.
Thanks, that would be appreciated.
Further to my comment, here is a link to the RDSP publication IC99-1R2 Registered Disability Savings Plans. Item 65 discusses rollovers.
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ic99-1.html
My big thing with the RDSP that I find gets missed by people is the value of it as an estate planning tool. Of course I love it for the “FREE” money. I never leave that on the table LOL. But there are provisions that a parent or grandparent RRSP can be rolled over tax deferred to an RDSP. This is valuable when the parent is widowed or divorced with no spouse to rollover their savings. Tax deferred is a mighty thing and generally the main reason people have an RRSP in the first place. But if you die and don’t have a rollover, the government treats all money in the RRSP as if it was withdrawn in the year of death. So $100K RRSP will be added to income and taxed at the marginal rate. Ouch! So the RDSP rollover will prevent that. So even if someone doesn’t have money to contribute, the grant plus the rollover provision makes setting one up a no brainer.
Yes, good one to keep in mind and include in wills for any executor…another vehicle is a Henson Trust, especially if beneficiary in on some kind of social assistance program.
….that reminds me…I need to get on top of some of that. 😉
I have written about the Henson Trust, and in some cases it does make sense, but it is a much more spicy topic to deal with. More than 1 court case I am aware of, where there have been challenges about the Henson Trust.
Sounds great. Do you have any direct link to such info, or do I need to search for it? TIA.
In my case I trust my ESDC contact implicitly, but if you are unsure read:
https://www.budget.gc.ca/2019/docs/plan/budget-2019-en.pdf
“…. To address concerns that this treatment does not
appropriately recognize the financial impact that periods of severe, but
episodic, disability can have on individuals, Budget 2019 proposes to
eliminate the requirement to close an RDSP when a beneficiary no longer
qualifies for the DTC. Doing so will allow grants and bonds otherwise required
to be repaid to the Government to remain in the RDSP. To ensure fairness for
DTC-eligible beneficiaries, some restrictions on access to these amounts will
apply. …”
Then go to Page 363 of the document and the details are explained.
Great. Thx. The link is very helpful. Thanks for the info.
As I read this, this really is great news and cannot be emphasized enough, IMO. So this all came into effect as part of the 2019 budget. So effectively, the RDSP is “frozen” until or unless the eligibility for the DTC is restored, with exception noted for rollover of deceased, that than being forced to close it down like before.
What I am also reading is that “This measure will apply after 2020. An RDSP issuer will not, however, be required to close an RDSP on or after Budget Day and before 2021 solely because the RDSP beneficiary is no longer eligible for the DTC.”, which effectively means this is effective now, even though the new rules do not apply until 2021.
Another thing to add that I am also reading is that “There will be no requirement for medical certification that the individual is likely to become eligible for the DTC in the future.” and therefore to elect to keep the RDSP active. This too is great news that cannot be emphasized enough. In other words, once you qualify, you do not have to prove it again just to hold onto the RDSP.
At least that is how I am reading it. Let me know if I have anything wrong.
Thanks again.
I should add that this is all so important news, especially in the light of the potential risk of losing DTC eligibility, as the CRA seeks to change (and is changing?) criteria not only for new cases but reviewing existing ones. This has been an unsettling issue, at least as applies to RDSPs, until now.
My contact told me that as soon as the Budget was read, these rules were in place (given that was a Majority Government at the time). Yes, it seems like the RDSP is just put into “stasis”, until the beneficiary gets a DTC, turns 60, or passes on (with the penalties mentioned in my article).
Yes I agree that the CRA is becoming a bit more aggressive cancel’ing DTCs or asking for proof of disability after a period of time (especially with Autism).
Thx for confirming.
After writing this, I did go back to look at your original announcement of this news of the 2019 budget. I simply forgot about it because at the time I did not know if/when it went into effect. I also did not get a chance to read all the applicable details from the budget that I noted above.
Thx for bringing it forward again. All good news (except for the DTC and CRA part :-\ ).
Q: My (limited) understanding was that if one loses DTC eligibility, the RDSP had to be dissolved within a 12 month period and only if DTC eligibility was restored in the 12 month period could the RDSP continue. Has something changed in that regard?
From your text above, I do not see that, though it seems to imply that the RDSP no longer has to be dissolved AT ALL. Can you please clarify?
Yes, in the last budget the rules changed.