Video: Registered Disability Savings Plan’s payments (RDSP)

Transcript

The Registered Disability Savings Plan payments

Types of payments

Two types of payments can be made from a Registered Disability Savings Plan (RDSP):

• a disability assistance payment (DAP), and
• a lifetime disability assistance payment (LDAP)

Disability assistance payment (DAP)

A DAP is a discretionary payment that can be requested and made to a beneficiary or their estate at any time.

Financial institutions must stipulate in their specimen plan if DAPs are permitted.

A DAP includes a portion of:

• contributions
• earnings (including rollovers)
• grant and bond that has been in the plan for more than 10 years
• payments from designated provincial programs where funds are available

Lifetime disability assistance payment (LDAP)

An LDAP is payable, at least annually, until the plan is terminated, or the beneficiary dies, whichever occurs first. In other words, once LDAPs begin, they cannot be stopped.

An LDAP includes a portion of:

• contributions
• earnings (including rollovers)
• grant and bond that has been in the plan for more than 10 years
• payments from designated provincial programs where funds are available

Payments must begin no later than December 31 of the calendar year in which the beneficiary turns 60 years of age; however, a LDAP may be requested earlier.

DAP and LDAP Scenario

Here is a quick example of how a beneficiary could receive both a DAP and an LDAP.

Sarah currently receives a monthly LDAP of $500 to help cover her expenses. When her ramp breaks in July, Sarah asks for a one-time $2,000 DAP to cover the repairs.

Therefore, for the month of July, Sarah will receive both her regular $500 LDAP as well as an extra $2,000 DAP to fix her ramp.

Current payment rules

A payment cannot be made if the fair market value of the plan, after the payment, will be less than the assistance holdback amount. An $8,000 DAP is requested. The RDSP has a fair market value of $20,000 and an assistance holdback amount of $15,000; therefore, the holder will be limited to $5,000.

A payment made from an RDSP cannot contain grants and bond that is less than 10 years, unless it is a Specified Disability Savings Plan (SDSP).

Once an RDSP has been designated as an SDSP, payments must begin no later than the end of the following calendar year.

PGAP and non-PGAP designations

In a primarily government-assisted plan (PGAP), there are more government incentives than private contributions while in a non-PGAP, the plan contains more private contributions than government incentives.

The PGAP and non-PGAP designation for a plan is established on January 1 of each calendar year and remains effective for the full calendar year, up to December 31.

Taxation

The following portions of a DAP or an LDAP are taxable to the beneficiary or their estate:

• grant
• bond
• earnings
• payments from designated provincial programs
• rollovers of retirement savings, and
• rollovers of education savings

The contribution portion of the DAP or the LDAP is non-taxable.

Repayment of grant and bond

Do not forget, when a payment from an RDSP is paid and there are grant and bond that is less than 10 years in the plan, the financial institution repays the lesser of the following amounts:

• $3 of grants and bond for every dollar withdrawn, or
• the assistance holdback amount before the payment

Any repaid amount of grant and bond cannot be replenished.

Minimum and maximum amounts, payment ranges

Before money can be taken out of the account, the financial institution must determine whether or not the amount requested is within the applicable minimum and maximum payment rules, which may differ depending on the plan type:

• an RDSP in a regular PGAP or non-PGAP year
• an RDSP in a specified year, and
• a Specified Disability Savings Plan

RDSP in a regular year

In a primarily government-assisted plan:

• the maximum amount for a DAP or a combined DAP and LDAP is the greater of the formula result and 10% of the RDSP’s fair market value at the beginning of the year, and
• the maximum amount for an LDAP is the formula result

The formula can be found in section 146.4 of the Income Tax Act (ITA).

Before the end of the year in which the beneficiary turns 59:

• there is no minimum amount for a DAP, and
• the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning the year that the beneficiary turns 60: the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result.

In a non-primarily government-assisted plan:

• there is no maximum for a DAP or a combined DAP and LDAP, and
• the maximum amount for an LDAP is the formula result

Before the end of the year in which the beneficiary turns 59:

• there is no minimum amount for a DAP, and
• the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning the year that the beneficiary turns 60: the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result.

RDSP in a specified year

A specified year begins when a doctor or nurse practitioner attests that a beneficiary is not likely to survive more than 5 years.

An RDSP in a specified year, there is no maximum for a DAP, an LDAP or a combined DAP and LDAP.

Before the end of the year in which the beneficiary turns 59:

• there is no minimum amount for a DAP, and
• the minimum amount for an LDAP or a combined DAP and LDAP is $1

Beginning of the year when the beneficiary turns 60, the minimum amount for a DAP, an LDAP or a combined DAP and LDAP is the formula result.

Specified Disability Savings Plan

A Specified Disability Savings Plan (SDSP) provides beneficiaries who have a shortened life expectancy with greater flexibility to access their savings.

In an SDSP, the minimum amount is the formula result. The taxable portion of a DAP or an LDAP must not be more than $10,000. However, if the formula generates a taxable amount that is greater than $10,000, there will be no maximum amount.

The formula can be found in section 146.4 of the Income Tax Act (ITA).

Knowledge check

Time for a knowledge check.

Choose all the portions of a payment that are taxable:

1. contributions
2. grant
3. bond
4. earnings
5. rollovers

Answer

The answer is:

2. grant
3. bond
4. earnings
5. rollovers

Thank you.

[The final screen has the Canada wordmark.]