Until now the RDSP was only offered by the big banks. While many parents wanted their own trusted financial advisor to handle their child’s RDSP account along with their other assets, the lack of non-bank RDSP account options prevented this from happening.
In late 2011, Mackenzie Financial was the first non-bank investment firm to complete the CRA and regulatory requirements to offer an RDSP account. Additionally, government paperwork now exists to internally transfer an RDSP from one investment institution to another (thus avoiding grant and bond clawback, taxation and other problems that would be triggered if you tried to manually move the account).
While your financial advisor may be able to access Mackenzie Financial funds, this however doesn’t mean that the dealer they process their investment trades has done the agreements and set up the internal infrastructure to handle the RDSP through Mackenzie Financial through (all independent advisors must be affiliated with a larger financial institution through which all legal investment transactions are processed, also known as a “dealer”).
So what this means to you is that your advisor may still not be able to takeover managing an RDSP for you yet but at least that time will be coming really soon (so don’t rush to your advisor and expect they can handle this just yet). That said, if your advisor understands your needs and desires, they will likely contact you as soon as they actually can handle your RDSP needs.
As for changes to the RDSP, the Harper government has rolled out some key changes:
1) On a temporary basis until passed into law (royal assent) until Dec 31 2016, accounts can now be opened by qualifying family members (spouse, common-law partner, or parent), in cases where there is a question as to the capacity of the beneficiary, thus by-passing the requirement that the beneficiary legally consent to the account being opened.
2) The 10 year total grant and bond clawback rule will be softened for 2014 and forward so that small withdrawals (the amount has yet to be specified) will not trigger a 10 year grant and bond clawback but a $3 payback to $1 withdrawal instead (basically if you take $1 from the account, $3 of grants and bonds has to be repaid to the government). However, large withdrawals, closing of the account, deregistering of the account or if the beneficiary no longer qualifies will trigger a full 10 year grant and bond clawback.
3) The new budget aims to change the minimum and maximum withdrawal limits (LDAP) required when contributions are less than grants and bonds received for withdrawals in 2014 and forward.
4) In 2014, Registered Education Savings Plans (RESP) assets that were set up for a disabled beneficiary will be transferable on a tax free basis to the same beneficiary’s RDSP account. This is great where parents started educational finance planning prior to learning their child had a disability and did not like the existing options to deal with these assets should their child not be able to use it. Bear in mind that as per existing rules, this transfer will not attract new grants and bonds when transferred into the RDSP and similar to the RRSP rollover, the full RESP transfer will eventually be taxable in the hands of the beneficiary once withdrawn. In most cases as long as the withdrawal in combination with social income benefits is below the personal tax exemption limits and disability tax credits, the taxable portion of RDSP withdrawals may not trigger tax owed to the government.
5) In 2014, should a beneficiary no longer qualify for the Disability Tax Credit (DTC) which is required to hold the RDSP, an election may be made to hold the account open if a medical practitioner will certify that the beneficiary will qualify for the DTC again in the foreseeable future. Knowing how the government operates, this implies however that while the RDSP account may remain open, contributions will not attract grants and bonds when the beneficiary does not qualify for the DTC.
So while these are some positive changes they still may present problems for your family’s individual needs and financial plan. Please consult with your financial advisor to find out how these changes affect you.
By David Chen, DC Complete Financial Services
David Chen, BSc, BA, CPCA
DC Complete Financial Services