If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.
The 2010 Federal Budget had some really exciting news regarding the RDSP. For those of you who were able to read through the entire text, you may have come across some very important highlights, including:
- In recognition that families of children with disabilities may not be able to contribute regularly to their Registered Disability Savings Plan (RDSP), Budget 2010 proposes to allow a 10-year carry forward of Canada Disability Savings Grant (CDSG) and Canadian Disability Savings Bond (CDSB) entitlements. In event of delays of opening a RDSP as a result of the complex guardianship processes that are in place in some provinces, the proposed carry forward will preserve a beneficiary’s entitlement to CDSGs and CDSBs so that they are available when a plan is opened.
- In the Budget, the government is also encouraging all provinces to look at introducing more streamlined alternative processes to formal guardianship arrangements, such as those in place in British Columbia.
- To provide parents more flexibility in ensuring that their savings may be used to support a disabled child, when they are no longer able to support the child, Budget 2010 proposes to allow a deceased individual’s RRSP or RRIF proceeds to be transferred, on a tax-free basis, to the RDSP of a financially dependent infirm child or grandchild.
- To enhance accessibility for people with disabilities, Budget 2010 extends the Enabling Accessibility Fund and provides $45 million over the next three years. The Fund will continue its support for small projects which focus on removing barriers and enhancing accessibility. The program will also support a number of mid-sized projects, allowing for communities to undertake larger retrofit projects or foster partnerships for new facilities.
PLAN is very pleased with the proposed initiatives around the RDSP that have been outlined in the Budget. These will have serious impact on thousands of Canadians with an RDSP or looking to set up an RDSP.
Here is a quick breakdown of the highlights identified above:
The first change is that parents and grandparents will now be able to roll their RRSPs and RRIFs into a RDSP of a loved one with a disability on a tax deferred basis.
The advantage of the rollover is twofold. Because the RRSPs and RRIFs are collapsed at death, the entire amount becomes taxable income in one year. This often results in substantial tax payable. When the funds are passed into an RDSP no tax is payable. When the funds are withdrawn from the RDSP, they are taxable in the hands of the beneficiary. In most cases they will be withdrawn over many years, taxed at the beneficiary’s tax rate, and little tax will be paid.
For example, if a grandparent with a $100,000 RIF were to pass away, the $100,000 would become income in the year of their death and, depending on the province, would be taxed at about 40%. If rolled over into the RDSP of a grandchild, that’s a $40,000 savings!
The rollover is available to people who qualify for RDSPs. In addition, the beneficiary must be a dependent. Dependency is determined in one of two ways: either, there is a relationship of dependency – the parents or grandparents provide care or financial support or the beneficiary is financially dependent. Adults are considered financially dependent if their income is below $17,621 (for 2010).
The amount that can be rolled over is limited to the contribution space remaining in a beneficiary’s RDSP. Remember that the lifetime limit is $200,000. This amount will not result in a federal government contribution.
Also, check with your lawyer or accountant about rules for RRSP and RRIF holders who have died since 2008.
Carry Forward of Grants and Bonds
The second change is the ability to carry forward entitlements for the Canada Disability Savings Grant and Bond. The 2010 budget proposes to pay the Grant on entitlements for the previous 10 years (but not earlier than 2008 when the plan was established), if the person was eligible for the Disability Tax Credit then.
This means people establishing plans now will be able to claim the Grant for 2008 and 2009. If a family opens a plan for their loved one and contributes $4,500 in 2010, the federal government will contribute as much as 10,500 in Grant and, if the person qualifies, they may be eligible for as much as $3,000 more in Bond.
While up to 10 years of entitlements may be carried forward, no more than 10,500 in Grant will be paid in any given year.
Guardianship and Law Reform
Many families outside of BC, who would like to assist a relative who might not be found to have contractual capacity, have not opened RDSPs because of the obstacles presented by adult guardianship. If an adult does not act as holder of a plan that is set up when they are an adult, then the holder must be a legal representative. Outside of BC, the options are adult guardianship or a Power of Attorney.
Many families have not opened plans because they do not want to subject their loved one to the process of being deemed incompetent and having many decision-making powers stripped away. Others have expressed concern at the cost of the process
People in BC are fortunate to be able to appoint a legal “Representative” with a Representation Agreement even if they might not have contractual capacity. A Representation Agreement is much like a Power of Attorney, except the person making the Agreement does not need to demonstrate contractual capacity nor does the Representation Agreement need to be drawn up by a lawyer. In fact, in our experience, most people do not visit lawyers. If a Representation Agreement is used to manage routine financial matters, then there must be two Representatives or a monitor must be appointed to safeguard the person if they are vulnerable.
The laws governing legal representation are provincial. While the federal government has considered implementing a short term solution as proposed by PLAN, their preference is that it be done right by making the appropriate provincial and territorial reforms. The carry forward rules mean that people will not be penalized while provinces consider changes to their adult guardianship and supported decision-making laws.
What is the solution? Provinces will decide, but the experiences of people with disabilities, families, seniors and others who have used British Columbia’s Representation Agreements have been very positive.
As families know all too well, parents do not live forever. Regardless of who takes on responsibility for safeguarding a loved one into the future, the options for assisting a vulnerable person with their decision-making is either adult guardianship or Representation Agreements. Representation Agreements provide the option of giving legal status to people’s support networks, whether those people be family or friends. In developing long term plans for families, we have found them to be essential tools.
The recent ratification of the UN Convention on the Rights of People with Disabilities provides added incentives for provinces to take another look at the Representation Agreement.
Enabling Accessibility for Persons with Disabilities
The reforms to the RDSP have garnered most of the press but also in Budget 2010, the Government renewed its commitment to helping all Canadians to participate fully in their
communities by providing another $45 million for the Enabling Accessibility Fund.
The importance of accessibility can’t be overstated. Catherine Frazee likens accessibility to a welcome. Indeed, as Canadians do we want to leave anyone stranded on our doorsteps, unable to come in and enjoy our hospitality?
This is a commendable commitments. Most people acknowledge that making Canada accessibility to all citizens will take time. The commitment to this fund means that the federal government is making Canada accessible building by building, community by community.
To find out more about the Federal Budget 2010 you can visit:http://www.budget.gc.ca/2010/home-accueil-eng.html
To find out more about PLAN’s continuing public policy campaigns you can visit www.plan.ca or click here: http://www.plan.ca/sections/campaigns.html