A Registered Disability Savings Plan (RDSP) can be classified as a number of different plans. Each one has it’s own set of rules when it comes to withdrawal’s from the account.
Please note: A glossary of terms used is located at the bottom of this page.
Registered Disability Savings Plan (RDSP)
An RDSP is a Registered Disability Savings Plan where the total contributions made by the beneficiary are greater than the total amount received from the Government in the form of Bonds & Grants.
Limitations on Withdrawals: RDSP
There are no limitations on the amount of funds withdrawn from an RDSP in a calendar year using Lifetime Disability Assistance Payments or Disability Assistance Payments (LDAPs or DAPs) once the plan holder turns 60.
Primarily Government Assisted Plan (PGAP)
An RDSP becomes a PGAP in a year when the lifetime total of all grant and bond payments made by the government into the account, in the previous years, is greater than the lifetime total of all private contributions (contributions made by the plan holder) made into the account in the previous years.
Since the account contains “Primarily” (Greater than 50% of the total account balance) funds that have been provided by the government, it is classified accordingly as a Primarily Government-Assisted Plan (PGAP).
John Smith has an RDSP account that has been open for a period of 5 years. During that time, John has contributed 5,000 and has received $17,500 in Bonds and Grants from the Government. The Government’s Bonds and Grants, totaling $17,500, are greater than John’s contribution of $5,000; therefore, John’s account is classified as an PGAP.
Limitations on Withdrawals: PGAP
Once an account is classified as a PGAP the Disability Assistance Payments (DAPs) (including Lifetime Disability Assistance Payments (LDAPs)) must not exceed the greater of the LDAP formula and 10% of the fair market value (FMV) of the plan assets (FMV is the total dollar value of the account at a point in time) at the beginning of the year.
Note: Due to the complexity of these calculations, the example provided maybe difficult to understand. If you have any questions please contact us.
John Smith, age 60, has an RDSP account that has been open for a period of 25 years.
During that time, John has contributed $5,000 and has received $17,500 in Bonds and Grants from the Government. The Government contributions, totaling $17,500, are greater than John’s contribution of $5,000; therefore, John’s account is classified as an PGAP. During the 25 years the account has been open, John has earned a total of $7,000 in interest.
Since John’s account is a PGAP, the maximum amount he can withdraw in a specific calendar year, after he turns 60, is calculated as follows:
The greater of (a) 10% of Fair Market Value (FMV) of the account or the (b) LDAP formula.
Let’s look at the calculation for both FMV and the LDAP formula below, as it applies to our example.
(a) 10% of Fair Market Value (FMV) of the account
Step 1:
FMV = Total Bonds & Grants + Private Contributions + Interest or ($17,500 + $5,000 + $7,000) = $29,500
Step 2:
10% of FMV = .1*($29,500) = $2,950
(b) LDAP formula
A ÷ (B + 3 − C) + D
Based on the definitions shown below, in our example, the calculation would be as follows:
A ÷ (B + 3 − C) + D = 29500/(80+3-60)+0 = $1,282
In this example, the LDAP formula yields $1,282 while 10% of FMV is $2,950. The greater of these two values is $2,950, therefore, the maximum withdrawal amount for John in this calendar year is $2,950.
Note: This calculation needs to be completed annually, as both the beneficiaries age and the FMV of the account will change on an annual basis; as a result, the maximum DAP will change annually also.
where:
A = the FMV of the property held in the plan at the beginning of the year, (excluding the value of locked-in annuity contracts held by the plan trust) – in this example, $17,500+$5,000+$7,000 or $29,500
B = the greater of 80 and the age of the beneficiary at the beginning of the calendar year – in this example John is age 60. Therefore, 80 is greater than 60 so variable B will be 80
C = the actual age of the beneficiary at the beginning of the calendar year – in this example 60
D = the total of all periodic payments paid, or deemed to have been paid, under certain locked-in annuity contracts, to the plan trust in the calendar year, if applicable – in this example, not applicable, so $0
In order to calculate the non-taxable portion of the DAP, from our example above $2,950, we will utilize the formula below:
The non-taxable portion of a DAP made to a beneficiary from an RDSP is the lesser of:
(a) the DAP
$2,950
or
(b) the amount determined by the formula:
A × B ÷ C
($2,950 x $5,000)/$29,500 = $500.00
The result of the formula is $500.00, which is less than the DAP itself ($2,950), so we know that the non-taxable portion of the DAP is $500.00 in our example.
where:
A = the amount of the DAP; in our example above $2,950
B = the amount by which the total contributions made by the beneficiary to their RDSP exceeds the total non-taxable portion of all DAPs previously made from the RDSP. In other words:
B = (Total lifetime private contributions to the RDSP) – (Total of all Non-Taxable amounts from previous DAP’s, if applicable)
In our example, no previous DAP’s have been made and we know that John contributed $5,000 over the life of his RDSP. As a result, variable B would be calculated as follows:
(Total Contributions) – (Non-Taxable Portion of all previous DAP’s) or ($5,000) – ($0) = $5,000
C = the amount by which the FMV of the property held by the RDSP before the DAP is made, is greater than the assistance holdback amount for the plan. In other words:
C = (FMV of RDSP prior to DAP) – (Assistance Holdback Amount)
In our example, we know that the assistance holdback amount would be $0, since no grants or bonds have been paid within the last 10 years. John is age 60 and by law, can only receive bonds or grants until a maximum age of 49. As a result, variable C would be calculated as follows:
(FMV of plan immediately prior to the DAP) – (assistance holdback amount) = $29,500 - $0 = $29,500
Specified Disability Savings Plan (SDSP)
A specified disability savings plan (SDSP) is an account classification designed to provide beneficiaries who have shortened life expectancy with greater flexibility to access their savings from an RDSP. Beneficiaries with a life expectancy of 5 years or less are able to withdraw up to $10,000 per year in taxable savings, subject to certain conditions. This amount includes Grants, Bonds and earnings. In addition, beneficiaries can withdraw a pro-rated amount of their Plan contributions. Repayment of any remaining Grants and Bonds paid into the Plan within the preceding 10 years is not required until the death of the beneficiary.
However, once the decision has been made by the plan holder to transition to an SDSP and the plan is officially approved as an SDSP, no more contributions can be made to the plan and the plan will not be entitled to any new grant or bond. Furthermore, beneficiaries will not be entitled to carry forward any grant or bond for those years under this plan.
To take advantage of the SDSP classification, the Plan holder(s) must submit a request to the financial organization, along with a medical attestation. An RDSP officially becomes an SDSP when:
1. A licensed medical doctor or nurse practitioner provides a medial attestation by certifying in writing that the beneficiary of an RDSP is, in their professional opinion, unlikely to survive more than five years
2. The holder of the RDSP elects/decides to have the account classified as a SDSP in prescribed form (By completing the appropriate documentation) and provides the election (completed documentation), along with the medical certification/attestation, to the issuer of the RDSP (The financial institution that manages the RDSP)
3. ESDC receives notification of the election from the issuer (Financial Institution that holds the RDSP)
Limitations on Withdrawals: SDSP
If the beneficiary is age 60 or older, then there is no limit to how much can be withdrawn in a calendar year (In the form of DAP’s or LDAP’s) However, if the beneficiary is less than 60 years of age, then certain rules apply.
Withdrawals from an SDSP will not trigger a repayment of the assistance holdback amount as long as the sum of the taxable portion of all withdrawals made in the year does not exceed $10,000 (unless the LDAP formula result requires a greater amount to be paid).
Please refer to the table below for a summary, by account class, of the limitations on withdrawals from your plan:
Glossary of Terms
Disability Assistance Payments (DAPs)
A DAP is any payment from an RDSP to the beneficiary or any payment made to the estate of a beneficiary after their death. It is a singular payment that can be requested at any time and may consist of personal contributions, grant, bond, proceeds from rollovers and income earned in the account (Interest).
Note: If the plan holder is aged 59 or less, then A DAP is not permitted if, after the payment, the fair market value (FMV) of the property held by the RDSP would be less than the assistance holdback amount for the RDSP.
Lifetime disability assistance payments (LDAPs)
LDAPs are disability assistance payments (DAPs) that, once started, must be paid at least annually until either the plan is terminated (Meaning that the account balance is $0) or the beneficiary has died. These payments must begin by the end of the year in which the beneficiary turns 60 and, unless the account is classified as an SDSP (Refer to the SDSP section of this document for clarification, as special rules apply), are subject to an annual withdrawal limit determined by the formula described below.
Note: If an RDSP is classified as an SDSP, payments must start being paid from the plan before the end of the calendar year following the year in which the plan first became classified as an SDSP.
LDAP Formula
The total amount of the LDAP’s paid in a calendar year cannot be more than the amount calculated using the following formula:
A ÷ (B + 3 − C) + D
where:
A = the FMV of the property held in the plan at the beginning of the year, (excluding the value of locked-in annuity contracts held by the plan trust)
B = the greater of 80 and the age of the beneficiary at the beginning of the calendar year
C = the actual age of the beneficiary at the beginning of the calendar year
D = the total of all periodic payments paid, or deemed to have been paid, under certain locked-in annuity contracts, to the plan trust in the calendar year, if applicable
Non-taxable portion of a (DAP)
The non-taxable portion of a DAP made to a beneficiary from an RDSP is the lesser of:
• the DAP
• the amount determined by the formula:
A × B ÷ C
where:
A = the amount of the DAP;
B = the amount by which the total contributions made to any RDSP of the beneficiary that exceeds the total non-taxable portion of all DAPs previously made from any RDSP of the beneficiary. In other words:
B = (Total lifetime private contributions to the RDSP) – (Total of all Non-Taxable amounts from previous DAP’s, if applicable)
C = the amount by which the FMV of the property held by the RDSP before the DAP is greater than the assistance holdback amount for the plan. In other words:
C = (FMV of RDSP prior to DAP) – (Assistance Holdback Amount)
Assistance Holdback Amount (AHA)
The assistance holdback amount is defined in the Canada Disability Savings Regulations. In general terms, it is the total amount of bonds and grants paid into the RDSP within the last 10 years, less any part of that amount that has been previously repaid to Employment and Social Development Canada (ESDC), who are the issuers of the bonds and grants.
As of January 1, 2014, an amount that is three times the amount of the DAP, up to a maximum of the assistance holdback amount, is required to be repaid to ESDC if any DAP is paid from the RDSP.
Medical Attestation
A Medical Attestation, more formally known as a Terminal Illness Medical Attestation, is a process whereby a licensed medical doctor or nurse practitioner who is licensed to practice under provincial laws or who is licensed to practice under the laws where the beneficiary resides, certifies in writing that, in their professional opinion, the beneficiary will not live longer than five years.
Fair Market Value (FMV)
Fair Market Value is the total dollar value of the RDSP account at a point in time
Employment and Social Development Canada (ESDC)
Employment and Social Development Canada is the governing body who oversee’s the management and dissemination of the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) as part of the RDSP program.
Canada Disability Savings Grant (CDSG)
The grant is an amount that the Government of Canada pays into a registered disability savings plan (RDSP). The Government will pay matching grants of 300%, 200%, or 100%, depending on the beneficiary’s adjusted family net income and the amount contributed.
Canada Disability Savings Bond (CDSB)
The Canada Disability Savings Bond is money the Government contributes to the Registered Disability Savings Plans (RDSPs) of low- and modest-income Canadians. If you qualify for the Bond, then you can receive up to $1,000 a year, depending on the beneficiary’s family income. Over an individual’s lifetime, there is a limit of $20,000. Bonds are paid into the RDSP if an application has been made on or before December 31 of the year the beneficiary turns 49 years of age. You do not need to make any contributions to your RDSP to receive the Bond.
Private Contributions
Contributions made by the RDSP plan holder or beneficiary into their RDSP account.
Government Contributions
Contributions made by the government, in the form of either Bonds (CDSB) or Grants (CDSG), into an RDSP.
