Canada Revenue Agency recently released new rules concerning Registered Disability Savings Plan (RDSP) and the taxation of withdrawals from the plan. In a five-part series, Knowledge Bureau Report will examine RDSPs and explore the tax implications of the new rules. In this first report, Greer Jacks looks at what payments from RDSPs are taxable.

Contributions. A plan holder(s) is the person or persons who opens the account on behalf of the disabled person, who becomes the plan’s beneficiary. There is no limit to the amount the plan holder(s) can contribute annually to an RDSP, but the overall lifetime limit for a beneficiary is $200,000. Plans can qualify for a Canada Disability Savings Grant and the Canada Disability Savings Bond, as well as designated provincial programs, which are outside the contribution limit.

Contributions can be made to the plan until the end of the year in which the beneficiary turns 59.

A beneficiary can only have one RDSP at any given time, although the RDSP can have multiple plan holders throughout its existence.

Payments. Three types of payments can be made from an RDSP: disability assistance payments (DAPs), repayments of grants and bonds to the government, and transfers of all property from the beneficiary’s current RDSP to a new RDSP for the same beneficiary. Only the beneficiary or the beneficiary’s legal representative acting on the beneficiary’s behalf can receive DAPs, which is the only type of payment that is taxable. The beneficiary must include those amounts in his or her annual income.

Reporting the income. When payments are from the RDSP, RDSP issuers report the taxable part of the payments from the plan in box 131 of the T4A slip, located in the “Other information” area, and send two copies of the slip to the beneficiary or the beneficiary’s legal representative. The beneficiary must include this amount as income on line 125 of his or her tax return for the year in which he or she receives it.

For more details, see CRA’s information circular IC99-1, and CRA publication RC4460

Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.