Families caring for children with disabilities are set to gain more flexibility in providing for their kids’ long-term financial security under measures introduced in this year’s federal budget.
The budget, released on Thursday, features several measures that aim to improve registered disability savings plans by allowing more flexibility for contributors.
“We are helping people with disabilities and their families to plan for the future,” Finance Minister Jim Flaherty said in his budget speech.
One of the measures proposes to allow a 10-year carry forward of Canada Disability Savings Grant and Canada Disability Savings Bond entitlements.
Annual RDSP contributions attract grants of up to $3,500, depending on the beneficiary’s family income and the amount contributed, up to a lifetime limit of $70,000. In addition, bonds of up to $1,000 annually are provided to RDSPs established by low- and modest-income families, based on a beneficiary’s family income, up to a lifetime limit of $20,000.
The new measure recognizes the fact that families of children with disabilities may not be able to contribute regularly to their plans, and allows them to carry forward unused grant and bond entitlements from years during which they aren’t able to contribute.
“People don’t have the money right away, necessarily, to contribute to a child’s RDSP in light of all their other priorities,” says Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth Management.
The government proposes that beginning in 2011, upon opening an RDSP, CDSB entitlements will be determined and paid into the plan for the preceding 10 years (though not before 2008, the year RDSPs became available), based on the beneficiary’s family income in those years. Balances of unused CDSG entitlements will also be determined and maintained for the same period, and the grants will be paid on unused entitlements, up to an annual maximum of $10,500.
“It’s good news, because it allows you to go back and collect prior years’ grants, as opposed to just getting the current year’s grant,” says Golombek.
A second RDSP measure proposed in the budget addresses concerns around whether disabled children will be adequately provided for in the event that one or both of their parents die. To provide more flexibility to families facing these circumstances, the government proposes to allow a deceased individual’s RRSP or registered retirement income fund proceeds to be transferred, on a tax-free basis, to the RDSP of a financially dependent infirm child or grandchild.
Under the current rules, proceeds of a deceased individual’s RRSP or RRIF can be rolled over into the RRSP or RRIF of a disabled beneficiary, but cannot be rolled into the RDSP. This presents challenges for mentally disabled individuals who may not be able to manage an RRSP, explains Golombek.
“A lot of parents would like this flexibility to be able to pass their money upon death and leave it to the benefit of a disabled person, and the RDSP is sort of the ideal vehicle to do that,” he says. “This gives some extra planning opportunities for parents with a disabled child.”
Golombek on Budget: Changes to RDSP tax measures
Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, describes changes in tax treatment to Registered Disability Savings Plans announced in the 2010 federal budget. He spoke at the Government Conference Centre in Ottawa, March 4, 2010. WATCH