Several reforms important to people with disabilities became law in mid-December when Bill C-47 (the last of the budget Bills) was passed by the Senate and given Royal Assent.
In his budget, Finance Minister Flaherty announced carry forward provisions for the Canada Disability Savings Grant and Bond as well as provisions for the rollover of RRSPs and RRIFs to the RDSPs of sons, daughters and grandchildren.
1. Carry Forward Provisions for RDSP Grants and Bonds
Effective 2011, people’s Canada Disability Savings Grant and Bond entitlements can be carried forward.
When a person opens an RDSP, Canada Disability Savings Bond entitlements will automatically be calculated and paid into the plan for the preceding 10 years (but not before 2008, when the RDSP was launched). This means people opening RDSPs in January, 2011 will can qualify (based on income) for up to $4,000 in Canada Disability Savings Bond – $1,000 for each of 2008, 2009, 2010 and 2011.
At the same time, the balances of unused CDSG entitlements will be determined for the same period. If contributions are made to the RDSP, Canada Disability Savings Grants will be paid on unused entitlements, up to an annual maximum of $10,500. The matching rate on unused entitlements will be the same as if the contribution were made in that year. In addition, contributions will be used against Grant entitlements at the highest rate first.
That means a contribution of $2,000 into a new RDSP in 2011 will result in a Canada Disability Savings Grant payment of $6,000 ($2,000 x 300%). Combined with the Canada Disability Savings Bond, the result will be $10,000 from the federal government.
That’s equivalent to turning $2,000 into $12,000! See table below:
|Canada Disability Savings Bond||$4,000|
|Canada Disability Savings Grant||$6,000|
|Total in RDSP||$12,000|
2. RRSP/RRIF Rollover to a Registered Disability Savings Plan
The new provisions will permit parents and grandparents to rollover RRSPs and RRIFs, at death, to the RDSPs of financially dependent children and grandchildren, on a tax deferred basis. A person is generally considered to be financially dependent if their income is below a specific threshold ($17,621 for 2010). A person whose income is above this amount may also be considered to be financially dependent if dependency can be demonstrated.
Normally any assets held in RRSPs and RRIFs become income in the year of the death. When these assets are passed to the RDSP of a child or grandchild, the tax that would normally be payable is waived.
The amount of the rollover may not exceed the beneficiary’s available RDSP contribution room. That means as much as $200,000 can be rolled into a new RDSP. If contributions have already been made then the amount will equal $200,000 minus previous contributions (This doesn’t include federal government contributions).
The rollover will count as contributions towards the beneficiary’s lifetime limit but will not be matched by Canada Disability Savings Grants. The rollover will be considered private contributions for the purpose of determining whether private or government contributions are greater. But because the rollover will not have been subject to income tax, it will be considered taxable when withdrawals are made.
The rollover is effective for deaths occurring on or after March 4, 2010. For deaths of an RRSP annuitant after 2007 and before 2011, special transitional rules will apply.