Ottawa simplifying RDSP program

Mar 29, 2012 – 2:36 PM ET | Last Updated: Mar 29, 2012 4:20 PM ET

Ottawa is making some key changes to the Registered Disability Savings Plan which will make it easier to open accounts and also to make withdrawals.

The government first introduced the RDSP program in December 2008, and since then 55,000 accounts have been opened.

There are now 11 different financial institutions which offer RDSPs and beneficiaries have contributed more than $220-million with the government providing about $450-million of contributions through the Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs).

However, Ottawa wants an even larger participation rate and has been canvassing the public about what would increase interest.

Based on feedback, the government is replacing the obligation to repay CDSG and CDSB withdrawals within the 10 years proceeding a withdrawal with a requirement to repay CDSGs and CDSBs at a fixed ratio to the amount withdrawn.

It will also provide greater flexibility for parents who saved in Registered Education Savings Plans (RESPs) to transfer their money to an RDSP. Investment income earned in the RESP can now be transferred on a tax-free basis to an RESP beneficiary’s RDSP.

It also addressed the issue of RDSP beneficiaries who may no longer qualify for the disability tax credit. To open an RDSP you must qualify for RDSP. Ottawa now says it will extend the period a plan may stay open for people who no longer qualify for the DTC.

“I think it’s very positive changes and show the government is listening to many of the submissions that have been made on RDSPs,” said Jamie Golombek, managing director of tax and estate planning of CIBC Private Wealth Management.

He added changes to the rules for opening up a plan for an adult beneficiary will be welcome news. Ottawa has pledged to work with the provinces for a streamlined process for opening up accounts for people who lack “contractual competence” but, in the interim, the government has expanded the definition of who may be the place holder of RDSP to include a beneficiary’s spouse, common-law partner or parents.