March 20, 2019
Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit
* Update March 2021 – This article was originally posted in March 2019. For more up-to-date information on how RDSPs are treated during periods of DTC loss, please refer to our tutorial here. For more information on how RDSPs are treated in cases of bankruptcy, please contact our helpline.
On Tuesday, March 19th, 2019, the Federal Government announced important changes within the 2019 budget related to the RDSP:
To open an RDSP, an individual must be eligible for the Disability Tax Credit (DTC). When a beneficiary no longer qualifies for the DTC, the RDSP rules can require that the plan be closed, and grants and bonds be repaid to the Government of Canada. To address concerns that this treatment does not appropriately recognize the financial impact that periods of severe, but episodic, disability can have on individuals, Budget 2019 proposes to eliminate the requirement to close an RDSP when a beneficiary no longer qualifies for the DTC. Doing so will allow grants and bonds otherwise required to be repaid to the Government to remain in the RDSP. To ensure fairness for DTC-eligible beneficiaries, some restrictions on access to these amounts will apply. The estimated cost of this measure is $109 million over five years, beginning in 2019–20, and $33 million per year ongoing.
Unlike RRSPs, amounts held in RDSPs are not exempt from seizure by creditors in bankruptcy. To level the playing field, Budget 2019 also proposes to exempt RDSPs from seizure in bankruptcy, with the exception of contributions made in the 12 months before the filing.
We’re very excited to see the Federal Government acknowledging the need for change as we continue to advocate for improvements related to the RDSP.
Read the full article here.