ENSURING THE EFFECTIVENESS OF REGISTERED DISABILITY SAVINGS PLANS
An important consideration for parents and grandparents of a
child with a severe disability is how best to ensure that child’s
financial security when they are no longer able to provide
support. In July 2006, the Minister of Finance appointed the
Expert Panel on Financial Security for Children with Severe
Disabilities to examine this issue. The panel submitted its report,
A New Beginning, in December 2006.
The Government acted on the Panel’s recommendations by
announcing the introduction of a new tax-assisted Registered
Disability Savings Plan (RDSP) in Budget 2007, which became
available in December 2008.
In Budget 2011, the Government of Canada announced that it
would undertake a review of the RDSP program in 2011,
consistent with the commitment in Budget 2008 to undertake a
review of the program in three years. Budget 2011 noted that
“while there is broad agreement on the RDSP’s overall structure
and eligibility conditions, the review will provide an opportunity to
seek input from individuals, families, groups representing
Canadians with disabilities and financial institutions on specific
features [of the RDSP].” (Budget Plan, p. 127)
This consultation paper outlines the major elements of the RDSP
program and seeks the views of Canadians on important
elements of the program, including issues related to establishing
plans, accessing plan savings, plan termination, and the
administration of the RDSP program. The Government
encourages interested Canadians to submit comments on these
and other relevant issues.
2. RDSPs in Canada Today
An RDSP may be established for an individual who is eligible for
the Disability Tax Credit (DTC). The DTC-eligible individual is the
plan beneficiary. The plan holder is the person who generally
opens the RDSP and makes decisions regarding contributions,
investments, and withdrawals. The plan holder can be the
beneficiary, or if the plan is opened for a minor child, a parent.
The plan holder can also be a legal representative of the
The plan consists of three elements:
1. Parents, beneficiaries and others wishing to save on behalf of
the beneficiary are allowed to contribute to an RDSP, with the
written permission of the plan holder. Contributions to an RDSP
for a beneficiary are limited to a lifetime maximum of $200,000.
Contributions are permitted up until the end of the year in which
a beneficiary attains 59 years of age.
2. Annual RDSP contributions attract Canada Disability Saving
Grants (CDSGs) at matching rates of 100, 200, or 300 per cent,
depending on the beneficiary’s family income and the amount
contributed, up to a maximum lifetime CDSG limit of $70,000.
The family income ranges and the corresponding maximum
annual CDSGs are set out in Table 1.1. An RDSP is eligible to
receive CDSGs up until the end of the year in which the plan
beneficiary attains 49 years of age.
Maximum Annual Canada Disability Savings Grants
Up to $83,088
300% on the first $500
200% on the next $1,000
100% on the first $1,000
*Family net income thresholds are for 2011. These income
thresholds are indexed to inflation.
3. The Government provides up to $1,000 in Canada Disability
Savings Bonds (CDSBs) annually to RDSPs established by low-
and modest-income families, up to a lifetime limit of $20,000.
The amount of the CDSB begins to be phased out when the
beneficiary’s family income exceeds $24,183 and is fully phased
out at family income of $41,544 (for 2011). CDSBs are paid into
RDSPs up until the end of the year in which the plan beneficiary
attains 49 years of age.
Investment income earned in an RDSP grows tax-free.
Contributions to an RDSP are not deductible and are not included
in the beneficiary’s income when withdrawn. CDSGs, CDSBs and
investment income earned in an RDSP are included in the
beneficiary’s income for tax purposes when paid out of the RDSP.
Any CDSGs and CDSBs paid into the plan in the 10 years
preceding a withdrawal from the plan must be repaid to the
Government (except in cases where the beneficiary has a
shortened life expectancy, subject to certain conditions).
Payments from an RDSP are required to commence by the end of
the year in which the beneficiary attains 60 years of age.
To ensure that RDSP payments supplement, rather than replace,
other income-tested benefits, amounts paid out of an RDSP are
not taken into account for the purpose of calculating federal
income-tested benefits delivered through the income tax system,
such as the Canada Child Tax Benefit and the Goods and Services
Tax Credit. In addition, amounts paid out of an RDSP do not
reduce Old Age Security or Employment Insurance benefits.
The Government has worked with provinces and territories to
ensure that RDSPs can achieve their intended objectives.
Newfoundland and Labrador, Nova Scotia, Ontario, Manitoba,
Saskatchewan, Alberta, British Columbia, the Northwest
Territories, Nunavut, and Yukon have announced that RDSP
income and assets will not affect income support benefits, while
Quebec, New Brunswick and Prince Edward Island have
announced that RDSP payments will not reduce income support
benefits up to certain limits.
3. Recent Improvements
The RDSP is widely regarded as a major policy innovation and
positive development in helping to ensure the long-term financial
security of children with severe disabilities.
The Government has made several improvements to the RDSP
program since its introduction to respond to the needs of
beneficiaries and improve the effectiveness of the program (see
Table 1.2 Improvements to the RDSP since 2008
2008 To provide greater certainty for parents planning to establish an RDSP for their child, the rules were amended to ensure that a mandatory wind-up of the plan occurs only where the beneficiary’s condition has factually improved to the extent that the beneficiary no longer qualifies for the DTC. Previously, the rules would have required a plan to be collapsed if a beneficiary’s DTC certification were rescinded, even if the beneficiary continued to meet the substantive eligibility requirements for the DTC.
To ensure that as many individuals as possible could establish an account and be eligible for CDSGs and CDSBs for 2008, the deadline for opening an RDSP, making contributions and applying for grants and bonds for that year was extended by two months.
2010 In recognition of the fact that families of children with disabilities may not be able to contribute regularly to their plans, a 10-year carry forward of CDSG and CDSB entitlements was introduced.
To give parents and grandparents more flexibility in providing for a disabled child’s long-term financial security, rules were amended to allow a deceased individual’s Registered Retirement Savings Plan or Registered Retirement Income Fund proceeds and certain Registered Pension Plan proceeds to be transferred, on a tax-free basis, to the RDSP of a financially dependent infirm child or grandchild.
2011 In recognition of the greater immediate need for beneficiaries with shortened life expectancies to access their savings, rules were amended to give such beneficiaries more flexibility to withdraw their RDSP assets without requiring the repayment of CDSGs and CDSBs.
4. Topics for the RDSP Three-Year Review
This section is divided into five topics: basic parameters;
establishing plans and legal representation; savings accumulation
and access; plan termination; and improving administration and
reducing red tape. A number of questions are included after each
topic to seek feedback from stakeholders.
ESTABLISHING PLANS AND LEGAL REPRESENTATION
The basic parameters of the RDSP (outlined in the “RDSPs in
Canada Today” section earlier in this paper) include: a lifetime
contribution limit of $200,000; a matching grant regime to
encourage contributions; a bond payment to support low- and
modest-income beneficiaries; the ability for investment income to
grow tax-free; and age requirements to encourage long-term
savings and ensure that plan assets are used for the beneficiary.
Are existing parameters effective in supporting the objectives of
Are there aspects of these parameters that could be improved?
Like all registered plans, there are certain conditions that must
be met before an RDSP may be established for a beneficiary.
For example, beneficiaries must be eligible for the DTC, under
age 60, and a resident of Canada. These rules help ensure that
RDSPs are used for the long-term savings needs of Canadians
with severe disabilities.
There are also rules that determine who may be the plan holder
of an RDSP. The plan holder is the person who opens the RDSP
and makes decisions regarding the operation of the plan,
including for example, authorizing contributions to the plan and
making withdrawals on behalf of the beneficiary.
• If the beneficiary is a minor at the time the RDSP is opened, a
legal parent, guardian, tutor, or curator of the beneficiary (or
an individual, public department, agency, or institution that is
legally authorized to act for the beneficiary) may open an RDSP
for the minor and become a plan holder. When a plan is
opened by a beneficiary’s legal parent, the legal parent may
continue as holder of the plan after the beneficiary reaches the
age of majority. When the beneficiary becomes an adult and is
legally able to enter into a contract, the parent may choose to
remain as the sole plan holder, to add the beneficiary to the
RDSP as a joint holder, or to remove themselves as plan holder
and allow the beneficiary to become the sole plan holder of the
RDSP. If a plan is opened by somebody other than the
beneficiary or the beneficiary’s legal parent, that person or
body generally must be removed as a holder of the plan when
the beneficiary reaches the age of majority.
• If the beneficiary has reached the age of majority when a plan
is opened for the first time and is legally able to enter into a
contract, the beneficiary must be the plan holder.
• If the beneficiary has reached the age of majority and is not
legally able to enter into a contract when a plan is opened for
the first time, another qualified person must open an RDSP for
the individual and become the plan holder. These qualified
persons are: a guardian, tutor, or curator of the beneficiary, or
an individual, public department, agency, or institution that is
legally authorized to act for the beneficiary.
These rules give as much control as possible to the beneficiary
with regard to decision-making in an RDSP, recognizing that the
beneficiary’s interests are paramount, while permitting parents to
continue to be the plan holder of an RDSP that was established
for a minor child once the child reaches the age of majority.
When a beneficiary has attained the age of majority and is not
able to enter into a contract, the rules effectively limit potential
plan holders to the beneficiary’s legal representative. While this
helps ensure that the beneficiary’s interests are protected, it can
prevent some individuals from becoming a plan holder. In this
regard, a number of adults with disabilities have experienced
problems in establishing a plan as the nature of their disability
precludes them from entering into a contract.
Questions of appropriate legal representation in these cases are a
matter of provincial and territorial responsibility. In many
provinces and territories, an RDSP can be opened for an
individual who has attained the age of majority and is not able to
enter into a contract only if the individual is declared legally
incompetent and someone is named as their legal guardian—a
process that can involve a considerable amount of time and
expense on the part of concerned family members. Some
provinces, such as British Columbia, have instituted more
streamlined processes to allow for the appointment of a trusted
person, such as a parent or friend, to manage resources on
behalf of a disabled individual. The Government of Canada has
encouraged other provinces and territories to determine whether
such streamlined processes would be appropriate for their
Some stakeholders have expressed support for provincial or
territorial responses that would streamline procedures for the
appointment of legal guardians; others have advocated that a
solution be found through different channels. Any proposal would
require careful consideration of costs, administrative feasibility,
liability issues, oversight, and accountability.
Are the general rules related to establishing RDSPs working well?
Do beneficiaries and their families face obstacles in establishing
RDSPs, and if so, how could these obstacles be overcome?
In particular, what is the appropriate approach to addressing
legal representation issues? What elements would need to be part
of a solution that would meet the needs of beneficiaries and their
families, as well as the needs of RDSP providers?
SAVINGS ACCUMULATION AND ACCESS
The 10-Year Rule
The RDSP rules are generally designed to facilitate savings
accumulation to ensure that beneficiaries are able to build private
savings that, in conjunction with the government assistance
provided to RDSP beneficiaries, make a substantial contribution
to their long-term financial security. It is important that these
rules provide beneficiaries with sufficient flexibility, while still
supporting the long-term savings objective of the RDSP.
Changes in Budget 2010 provided, for the first time, the ability to
transfer funds from a registered plan to an RDSP on a tax-free
basis (referred to as a “rollover”), in order to give parents and
grandparents more flexibility in providing for a disabled child’s
long-term financial security. Specifically, Registered Retirement
Savings Plan or Registered Retirement Income Fund proceeds and
certain Registered Pension Plan proceeds of a deceased individual
may be rolled over to the RDSP of a financially dependent infirm
child or grandchild, subject to the beneficiary’s available RDSP
contribution room. Rolled-over proceeds reduce a beneficiary’s
RDSP contribution room, but do not attract CDSGs.
Some parents have noted that the ability to transfer funds from
Registered Education Savings Plans (RESPs) could improve the
RDSP’s potential as a savings vehicle.
Would it be appropriate to accommodate rollovers from RESPs to
RDSPs? If so, how could a rollover be consistent with the
objectives of both plans, while still being responsive to changes in
The ability for a beneficiary to access savings when he or she is in
need of support is key to the success of the RDSP. However, this
flexibility must be balanced against the need to promote long-
One requirement in this regard is the “10-year rule,” which
requires that upon a withdrawal from an RDSP, the cessation of a
beneficiary’s eligibility for the DTC, or the death of the
beneficiary, any CDSGs and CDSBs paid into the plan during the
preceding 10 years be repaid to the Government. Investment
income in the plan, including income earned on CDSGs and
CDSBs, does not need to be repaid.
While the 10-year rule serves to encourage long-term savings,
some stakeholders have suggested that it could also prevent
some beneficiaries with a shortened life expectancy from
obtaining income support through RDSP withdrawals when they
need it. In recognition of the greater immediate need for these
beneficiaries to access their savings, Budget 2011 waived the
10-year rule for beneficiaries with shortened life expectancies,
subject to certain conditions. While this measure will provide
flexibility to those in immediate need due to shortened life
expectancy, there may be other beneficiaries whose specific
needs may not be consistent with the 10-year rule.
Under what circumstances should exemptions from the 10-year
rule be allowed? What alternatives to the 10-year rule could be
considered that would improve access to savings, while still
supporting the long-term savings objective of the RDSP?
There are a number of factors that can cause an RDSP to be
terminated, generally due to the death of the beneficiary,
voluntary plan closure, or the cessation of DTC eligibility.
Terminating an RDSP has numerous implications: all CDSGs and
CDSBs paid into the plan during the preceding 10 years before its
closure must be repaid to the Government and any funds
remaining in the RDSP must be paid to the beneficiary, some of
which are taxable and included in the income of the beneficiary in
the year the payment is made to the beneficiary. These rules help
ensure that RDSPs are used only for the long-term savings needs
of individuals with a severe disability during their lifetime.
Cessation of DTC Eligibility
IMPROVING ADMINISTRATION AND REDUCING RED TAPE
Currently, if an RDSP beneficiary ceases to be eligible for the
DTC, their RDSP must be terminated by the end of the year
following the first calendar year throughout which the beneficiary
has no severe and prolonged impairment. (This means, for
example, that if a beneficiary ceased to be severely impaired in
2011, the RDSP would need to be terminated by the end of 2013,
since 2012 would be the first year throughout which the
beneficiary was no longer severely impaired.) This policy
addresses situations where a beneficiary ceases to have a
prolonged or severe disability for the foreseeable future.
However, there may be some RDSP beneficiaries who cease to
have an impairment whose effects qualify them for the DTC, but
who also have a medical likelihood of becoming eligible for the
DTC again in the foreseeable future—for example, individuals with
episodic illnesses. In such cases, the requirement to close the
RDSP and repay CDSGs and CDSBs may limit the capacity of the
RDSP to provide for the long-term savings needs of the
What should happen to an RDSP when a beneficiary ceases to be
eligible for the DTC (particularly if there is a medical likelihood
that the beneficiary would be eligible for the DTC in the
foreseeable future)? Are changes needed to provide greater
flexibility in these circumstances?
To ensure that RDSP transactions occur in a practical and timely
manner, beneficiaries, plan holders, and financial institutions are
required to comply with various administrative rules set out in the
Income Tax Act and the Canada Disability Savings Regulations.
In general, the administrative rules support the policy objectives
of the program by establishing compliance standards. These rules
deal with matters that include transferring RDSPs between
financial institutions; record keeping and information reporting;
deadlines for applying for CDSGs or CDSBs; and collection of
While these rules play a vital role in allowing RDSPs to operate
effectively, it is important to ensure that they are straightforward
and their implications can be understood by beneficiaries and
their families, so as not to hamper decision-making.
Administrative rules should also not present an unnecessary
burden for RDSP issuers, in order to make offering RDSPs
appealing to eligible financial institutions.
Are existing administrative rules effective in supporting the
objectives of the RDSP? If not, what changes are necessary to
ensure that they are?
Can existing administrative rules be easily understood by
beneficiaries and their families? If not, what steps can be taken to
reduce red tape for beneficiaries and simplify the rules?
Do existing administrative rules present an unnecessary
administrative burden for RDSP issuers? If so, how could this be
PROVIDING YOUR INPUT
These consultations are open to anyone.
The closing date for submissions is December 16, 2011.
Submissions can be emailed to RDSP-REEI@fin.gc.ca.
Also, written submissions can be forwarded to:
Tax Policy Branch
Department of Finance
16th Floor, East Tower
140 O’Connor Street
Ottawa, Canada K1A 0G5
Once received by the Department of Finance, all submissions will
be subject to the Access to Information Act (ATI Act) and may be
disclosed in accordance with its provisions. If a request pertaining
to your submission is received under the ATI Act, you will be
consulted under Section 27 of the ATI Act.