For people living with a disability, ensuring long-term financial security can be a major challenge. Their condition might interfere with their ability to earn an income or, in the case of a severe handicap, make it simply impossible. In such circumstances, the parents, spouse or other family members often step in to provide for the person. Along with the financial burden involved, this can also be a significant source of anxiety, especially in view of the fact that the disabled person might end up outliving their caregivers. 

There is an effective financial tool that can help manage this type of situation: the registered disability savings plan, or RDSP.  

What is an RDSP? 

The RDSP is a savings plan designed to provide long-term financial security for someone with a disability. It is part of the extended family of tax-advantaged savings accounts, such as the registered retirement savings plan (RRSP), the tax-free savings account (TFSA), the first home savings account (FHSA) and in particular, the registered education savings plan (RESP), with which it shares some similarities.  

How does an RDSP work? 

Making use of an RDSP can be complicated, but the basic principles are quite simple.  

• The holder (the person who opens the plan) and the beneficiary (the disabled person for whom the plan is opened), along with any other person authorized by the holder, can contribute any amount to the plan in a given year, to a lifetime maximum of $200,000. These contributions are not tax deductible, and the contribution cut-off date is December 31 of the year in which the beneficiary turns 59. 

• The plan contributions provide eligibility for a Canada Disability Savings Grant (CDSG) of 100% to 300% of contributions to a maximum of $3,500 per year or $70,000 lifetime. The amount of the grant is based on family income and is reduced when that income exceeds a certain threshold. Note that the grants are only paid until the year in which the beneficiary turns 49. 

• Low-income families are eligible for the Canada Disability Savings Bond (CDSB) as well, which pays a maximum of $1,000 per year or $20,000 lifetime. In 2023, families with income of $53,359 or less were eligible for at least part of the CDSB. Worth noting: there is no need to make contributions to receive the CDSB: the only requirements are to have an RDSP and file an income tax return. 

• Any money in an RDSP can be invested in a range of investment vehicles, and will be fully tax-sheltered as it grows, for as long as it stays in the plan. 

• Withdrawals made to cover the needs of the disabled person will only be partially taxable: amounts corresponding to contributions will not be taxed, while amounts corresponding to grants and investment income will be included in the beneficiary’s taxable income. Note, however, that this will not generally have a negative impact on any income-based government benefits the beneficiary is entitled to. 

Powerful leverage 

The combined effect of contributions, grants and returns compounded in a tax-sheltered environment can provide powerful leverage for accruing savings. The following graph speaks volumes. In this example, the beneficiary is assumed to be fully eligible for the CDSG and the CDSB. 

Advantageous, but not well known 

To qualify for the RDSP, the disabled person must have been approved for the disability tax credit (DTC), which essentially means that the government recognizes their handicap. The DTC eligibility criteria are themselves relatively complicated and restrictive, which may account for the fact that, despite its undeniable benefits, the RDSP is still not very widely used. A Statistics Canada survey shows that many people have not opened a plan, even when they are eligible for the DTC, because they either have little knowledge of it or have simply never heard of it. The complexity of the system, especially when it comes to opening an account, is also often given as a reason. 

This situation is puzzling, to say the least, given the undeniable advantages of the plan. In recent years, the Canadian government has proposed various changes to fix this by making the plan easier to access and use. Nevertheless, it seems that many people who could benefit from an RDSP still don’t have one, either from a lack of knowledge or a lack of support. 

If you think that you or a loved one might be eligible, take note that this support can be provided by someone you already know well: your advisor, who can help you every step of the way. Don’t hesitate to ask for assistance.