We wrote a well-received article in 2015 about the Registered Disability Savings Plan (RDSP).

The RDSP gives disabled people and their families a way to save and invest money for long-term security. To qualify, the disabled beneficiary must be:

  • Eligible for the Disability Tax Credit (DTC);
  • Under age 60; and
  • A resident of Canada with a valid social insurance number.

Anyone can contribute to an RDSP, including friends and family, if they have written permission. The contribution deadline each year is December 31st. Contributions are not tax-deductible (unlike an RRSP).

The beneficiary never pays tax on earnings inside the RDSP, only when funds are withdrawn. Any amount can be added to an RDSP each year; there is a $200,000 lifetime contribution limit. RDSP funds have to be withdrawn after age 60, so no contributions can be made after the disabled beneficiary turns 59. Low-income RDSP holders can qualify for government grants, too.

In Ontario, the RDSP asset, and money withdrawn from the plan, are exempt when determining Ontario Disability Support Program (ODSP) eligibility.

Despite the value of the program, only 24% of people who were eligible for the DTC had an RDSP in 2015. In addition, fewer than 40% of the more than 1.8 million adults who report qualifying disabilities are claiming the DTC.

Recent changes

To make the process easier, the 2018 Federal budget allows an adult disabled person’s parent, spouse, or common-law partner to become the holder of that person’s RDSP without becoming their legal representative, if they are living with the disabled person. (Prior to this, a court had to grant legal guardianship.) This improves the process for people with reduced mental or contractual capacity.

With the 2018 income tax year drawing to a close, RDSP holders should be aware of new income matching rates:

$30,450“Phase out income” – The income level above which the annual amount of Canada Disability Savings Bond payable begins to decrease.
$46,605“First threshold” – The income level that, when reached or exceeded, the annual amount of Canada Disability Savings Bond payable is nil.
$93,208“Second threshold” – The income level below which or equal to the matching grant in a particular year will be 300% of the first $500 in contributions and 200% of the next $1,000 in contributions; or, above which the matching grant will be 100% of the first $1,000 in contributions.

DTC Denial and Appeals

The devil is in the details: in this case, RDSP eligibility hinges on DTC eligibility – which the Canada Revenue Agency (CRA) determines, and can revoke.

People whose DTC has been revoked can keep their RDSP open for up to five years, in case they regain DTC eligibility. Without DTC eligibility, they cannot add to or withdraw from their RDSP. If they still do not qualify for the DTC after five years, their RDSP is closed, and the government withdraws any contributions it made.

Disabled people can appeal if CRA deems them ineligible for the DTC, but it is a difficult process, requiring medical professionals to prepare and submit an assessment. Doctors complain that the DTC application form does not allow adequate explanation of the degree to which a person’s disability creates daily challenges. Applicants and healthcare professionals feel the CRA is overriding expert diagnoses and advice.

In 2017, there was a spike in DTC rejections by CRA, partly because the government changed the wording of DTC application forms. Autism Canada reported 142 families encountered challenges applying for or renewing their DTC. Diabetes Canada estimates that 80% to 90% of applications from Type 1 diabetes sufferers —many of whom had formerly qualified — had their claims denied.

Responding to the public backlash, CRA announced it would return to the terminology on DTC applications in use before the number of rejections spiked. Officials also said they would review applications rejected since May 2017, and that a new Disability Advisory Committee will inform policies and services.

Proposed changes

A recent Senate report calls for improving the system to make it easier and less costly to apply. Requiring the DTC to be eligible for the RDSP is seen as too restrictive. It also suggested that some people (for example, those with neurodevelopmental disabilities) have greater difficulties applying for the DTC.

The report makes 16 recommendations, including:

  • Reviewing the appeals process to make it more straightforward and transparent;
  • Moving responsibility to assess DTC and RDSP eligibility from CRA to Employment and Social Development Canada;
  • Making the DTC a refundable tax credit;
  • Introducing automatic enrollment in the RDSP for people who are eligible for the DTC;
  • Broadening the eligibility criteria for the RDSP beyond the DTC;
  • Developing a guaranteed annual basic income for disabled Canadians.