What to do for clients with disabilities

.highlight { background-color: #F3EDE1; padding: 2px; }

Why read this?

• › Your client or her child has a disability
• › Your client is an RDSP holder (someone who administers an RDSP for a beneficiary).

What to do

1. Apply for the Disability Tax Credit (see “What to do for senior clients from April 2014). Your client must be approved for the DTC to use an RDSP, or to qualify for related tax benefits.

2. Claim all applicable benefits (see “Don’t overlook these benefits,” below).

Don’t overlook these benefits

If your client collects the Disability Tax Credit, she’s also eligible for:

• new work transportation and attendant allowances;
• enhanced tuition and text book credits;
• a $500 fitness credit;
• up to $10,000 in child care expenses;
• the ability to claim a person above age 18 as a dependent;
• the Family Caregiver Amount;
• the Child Disability Benefit (see our tablet edition);
• additional time to make RESP contributions (25 years) and use the plan (30 years);
• trust income taxed at graduated tax rates; and
• medical expenses for an attendant, nursing home or group home.

3. Report the taxable portion of RDSP withdrawals.

a. Contributions aren’t tax deductible, but investment income, amounts transferred from other registered accounts and federal grants and bonds are, says Ed Arbuckle, chartered accountant and owner of Personal Wealth Strategies in Waterloo, Ont. The taxable portion appears in Box 131 of slip T4A Statement of Pension, Retirement, Annuity and Other Income.

TIP

Repayments of grants or bonds previously reported as income are tax deductible. Report them on Line 232 of the return.

Read: Help clients with disabilities

> Include the amount in Box 131 on Line 125 of your client’s income tax return.

b. Repay Canada Disabilities Savings Bond and the Canada Disabilities Savings Grant contributions received in the last 10 years. This rule encourages beneficiaries and holders to keep government contributions in the RDSP for the long-term. “An RDSP is a retirement plan for a person with disabilities,” says Arbuckle. “Ordinarily, people shouldn’t put money into an RDSP and take it out soon after.”

> No matter when you withdraw, for every $1 taken out, pay back $3 of grants and bonds. Start repaying the oldest contributions first.

c. Pay tax by completing Form RC4532 Individual Tax Return for Registered Disability Savings Plan (RDSP), and submitting it to CRA. Payment is due March 31.

If the RDSP holder has non-qualified investments, such as property, or if she conducts RDSP transactions outside fair market value, she’ll pay tax. See the tablet edition for more details.

TIP

If the money comes from an RSP, the transfer is shown in Box 28 of slip T4RSP.

4. Report money transferred from a deceased parent or grandparent’s registered retirement accounts to an RDSP.

a. Report the transfer on Lines 129 and 232 of the benefactor and beneficiary’s returns.

b. The benefactor and the beneficiary must each submit form RC 4625 Rollover to a Registered Disability Savings Plan (RDSP) Under Paragraph 60(m) with their returns.

c. Submit a copy of the transfer receipt.

Read: Few clients have disability insurance

RRSP, RRIF or RPP transfers are taxed in the hands of the RDSP beneficiary when withdrawn.

TIP

If your client has just opened her RDSP but would’ve been eligible for grants or bonds in past years, she can apply to receive those contributions using a special election, says Arbuckle.

5. If a beneficiary recovers, or dies:

a. Close and withdraw all funds in the RDSP by Dec. 31 the following year. Any remaining funds must be paid to the beneficiary, or her estate, and are taxable as usual.

b. Repay government grants and bonds from the past 10 years.

Sources: CRA; Ed Arbuckle, FCPA, FCA, TEP, owner, Personal Wealth Strategies, Waterloo, Ont; Service Canada.

Make the most of RDSP contributions

Canada Disabilities Savings Grant: The federal government will match contributions up to $3,500 a year, to a maximum total of $70,000.

Canada Disabilities Savings Bond: The federal government will contribute up to $1,000 a year to any RDSPs making less than $43,561 a year, regardless of private contributions. The maximum lifetime bond amount is $20,000. The beneficiary is eligible until she turns 49.

by Jessica Bruno, content editor of Advisor Group.