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Federal Budget Introduces a Registered Disability Savings Plan

CACL Welcomes Registered Disability Savings Plan as One Step in Addressing Poverty of Canadians with Disabilities and their Families

The 2007 Federal Budget announced the implementation of a Registered Disability Savings Plan (RDSP).  The RDSP is an innovative approach to tapping private savings to enable families with children with disabilities to address the long-term economic security vulnerability of their family member.  It will enable these families to save money for their Disability Tax Credit-eligible children. 

The RDSP, largely based on the Registered Education Savings Plan, follows the recommendations from the Minister of Finance’s Expert Panel on Financial Security for Children with Severe Disabilities.  The Expert Panel report, “A New Beginning”, was introduced in December 2006. 

The announcement of the RDSP is a welcome measure in addressing the poverty of Canadians with disabilities and their families and is responsive to the calls for action from families across the country seeking ways to secure the long-term economic security of their sons and daughters with disabilities. 

We believe the RDSP is an important first step and that it will be a valuable addition to the financial instruments designed to assist people with disabilities and their families.  However, it is only a first step; much more is needed to address the staggering rates of poverty and exclusion facing people with disabilities and their families.  

CACL agrees with the Expert Panel report’s recognition that the Federal government has a role to play in addressing the extreme income security vulnerability of Canadians with disabilities and that this investment is only a beginning. 

Some key aspects of the Disability Savings Plan include:

  • Eligibility for the Disability Savings Plan will be based on eligibility for the Disability Tax Credit
  • Any individual can make a contribution to a Disability Savings Plan
  • The maximum total of all contributions for a Disability Savings Plan is $200,000 over a lifetime; there is no annual limit on contributions
  • Contributions are permitted until the end of the year in which the beneficiary attains 59 years of age
  • Contributions are not tax deductible
  • Investment will accrue tax-free
  • The Federal Government will match contributions through Canadian Disability Savings Grants (CDSGs):
    • For earners making more than $74,357 it's $1/$1 (Federal contribution/personal contribution) up to $1000. 
    • For earners making less than $74,357 it's $3/$1 (Federal contribution/personal contribution) for the first $500 and then $2/$1 on the next $1000. 
  • The Federal Government will also provide Canadian Disability Savings Bonds (CDSBs):
    • For earners making less than $20,883 a bond of $1000 would be available annually. 
    • In addition to the bond, earners making less than $20,881 are also eligible for the grant payments for any contributions they make.
    • There will be a lifetime limit of $20,000 on CDSBs and they are only available until the end of the year in which the beneficiary attains 49 years of age
  • All CDSGs and CDSBs (and associated investment income) paid to the plan in the 10 years preceding payment are to be repaid upon the cessation of eligibility or death
  • Payments from an RDSP are required to commence by the end of the year in which the beneficiary attains 60 years of age
  • When paid out, contributions will not be included in income for tax purposes although investment income earned in the plan will be
  • The beneficiary of an RDSP, or their legal representative, can encroach on the capital and income of the plan
  • Payments will be subjected to a maximum annual limit
  • RDSP payments will not reduce Old Age Security or Employment Insurance benefits

 

The detailed Federal Budget can be found at www.budget.gc.ca/2007/.  CACL will be circulating a full analysis of measures announced in Budget 2007 shortly. 

For more information please contact Anna MacQuarrie, amacquarrie@cacl.ca
More detailed information can also be found at www.planinstitute.ca/ezine/ezine_dsp_march1.html




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