Updated: Government moves ahead with relief for RDSP holders who lose DTC eligibility

Editor’s note: This article has been updated to reflect a corrected misprint in the Fall Economic Statement.

The federal government has affirmed its timeline for removing the limitation on the period that a Registered Disability Savings Plan (RDSP) may remain open after a beneficiary becomes ineligible for the disability tax credit (DTC).

The fall economic statement, delivered Monday by Finance Minister Chrystia Freeland, confirmed that the government plans to remove the limitation as of Jan. 1, 2021.

The government acknowledged that some people have “episodic disabilities” that result in them being temporarily ineligible for the DTC.

Changes to the RDSP were first proposed in the 2019 federal budget.

Under current legislation, when a beneficiary of an RDSP ceases to be eligible for the DTC, no contributions may be made to, and no Canada Disability Savings Grants and Canada Disability Savings Bonds may be paid into, the RDSP. Generally, the RDSP must be closed by the end of the year following the first full year during which the beneficiary is not eligible for the DTC.

Furthermore, an RDSP issuer is required to set aside an amount equivalent to the total Canada grants and bonds paid into the RDSP in the preceding 10 years, less any of these grants and bonds that have been repaid in that period. Upon plan closure, this amount must be repaid to the government. Any assets remaining in the RDSP after this repayment are paid to the beneficiary.

The fall economic statement noted that “any excess repayments of grant and bond that occur after* 2020 but before the measure can be enacted would be returned to a beneficiary’s RDSP following enactment.”

In the interests of fairness, the fall economic statement also modified the 2019 budget proposal’s complex formula for determining the amount of grants and bonds held back from a withdrawal.

For a beneficiary who ceases to be eligible for the DTC after the calendar year in which they turn 49, “the reference period for the assistance holdback amount would begin on January 1 of the year that is 10 years before the year in which the [withdrawal or plan closure] occurs and end on the day preceding the day on which the beneficiary ceased to be eligible for the DTC.”

No update on child disability benefit promise

The Liberal government’s 2019 campaign platform included a promise to double the child disability benefit. This promise was not addressed in the fall economic statement.

Other tax-related campaign promises not addressed in the statement include the 10% luxury vehicle tax, the promise to boost old age security by 10% for those aged 75 and older and the promise to raise the CPP survivor’s benefit by 25%. The latter two promises were mentioned in the Sept. 23 speech from the throne, with the government saying it “remains committed” to them.

Proposals from the 2019 federal budget that are yet to be enacted or addressed include introducing the advanced life deferred annuity and variable payment life annuity; individual pension plan reform; and tax changes affecting ETFs and mutual funds.

*The original version of this article stated “in 2020.” This line was misprinted in the fall economic statement and has now been corrected. Return to the corrected sentence.

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Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.