A Registered Disability Savings Plan (RDSP) is a tax-deferred savings vehicle that provides long-term financial security for people living with a disability. It includes government incentives such as the Canada Disability Savings Grant (CDSG) and potentially the Canada Disability Savings Bond (CDSB) that can add up to an additional $90,000 per individual.
For many individuals with disabilities, ongoing financial support is often required. An RDSP is an effective tool that can help families manage the financial costs associated with having, or caring for, someone with a disability.
Who is eligible for an RDSP?
Canadian residents under the age of 60 with a valid SIN who are eligible for the Disability Tax Credit can open an RDSP.
Who can set up an account?
For beneficiaries under the age of majority, the holder can be a legal parent, legal representative or public department. For beneficiaries over the age of majority, the holder is generally the beneficiary. In certain circumstances, a guardian, legal representative or public department may be eligible to become the holder.
Who can contribute to an RDSP?
Anyone can contribute to an RDSP, provided they have written consent of the account holder.
Just like with RESP contributions, extended families including uncles, aunts Godparents and friends can help ensure the financial security of their loved ones by pitching in with an RDSP contribution.
Tax consequences with an RDSP
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age.
Contributions that are withdrawn are not to be included as income for the beneficiary when paid out of an RDSP. However, the grant, bond and any investment income earned in the plan are included in the beneficiary’s income for tax purposes when paid out of the RDSP.
What is the contribution limit?
The contribution limit is up to $200,000 lifetime per individual over the life of the RDSP. There is no annual contribution limit.
Contribution deadlines
The annual contribution deadline for Grants and Bonds is December 31st. The last day for Grants and Bond eligibility is December 31st of the year the beneficiary turns 49 years of age.
The last day that contributions are permitted to the plan is December 31st of the year the beneficiary turns 59 years of age.
Since its inception in December, 2008, the RDSP has helped thousands of families across Canada. By offering a tax-deferred environment for contributions to grow and matching federal contributions annually (up to 300%), the Registered Disability Savings Plan gives new financial security to families in need.
Many people own property and investments jointly with another person, most commonly a spouse. But when a joint account is used with individuals other than a spouse there are risks that need to be understood.
There are two ways that a joint account can be held: joint with right of survivorship and tenants in common.
Joint Account With Right Of Survivorship
This is the most common type of ownership, also called joint ownership. Each owner has an undivided and equal legal interest in the account. Each owner can withdraw money and make investment decisions without the other’s consent. On the death of one owner, the account will belong entirely to the other, avoiding probate fees.
Tenants In Common
With this type of ownership, the owners may each own an equal or unequal portion, but each owner retains rights to his or her share of the joint account.
An example of this is two friends that are roommates. According to LegalZoom (a legal firm), they open a joint account to pay the rent and other living expenses. If one friend should die, his or her portion of the account would then belong to their estate and be distributed according to the instructions in the will, or by the intestacy rules of their province if there is no will.
Tax Consequences Of Making A Joint Account
If an account is made joint at a later date it is considered a change in ownership (beneficial interest). This can result in a “deemed disposition,” which is treated by CRA like a sale of half of the account to the other person at fair market value. If investments have increased in value since they were originally purchased, a capital gain is realized (even though it is not sold) and tax has to be paid by the original account holder.
Estate Consequences For Joint Accounts
Often a parent will make a joint account with a child for the main purpose of making is easier for the child to access the money or make investment decisions on the parent’s behalf (legal interest), but there is no intention of giving the child real ownership.
For estate purposes you must clearly document whether the account is a gift to the child, or still part of the estate. Otherwise, the account will pass to the child and can cause legal problems if other children or beneficiaries contest it. It can also put the assets at risk of the child’s creditors as well as claims from the child’s spouse.
Including A Child On Your House Title
In some cases a parent will add a child on to the title of their house to simplify estate distribution and also to avoid probate. This can have unintended consequences. While any capital gain on the sale of the home that is the principal residence is tax-free, an individual can claim only one residence as a principal residence.
Consequently, when a child is added as a joint owner and the child has his or her own home, there is a risk that the child will be liable for capital gains tax on the portion of the home that they own.
If you are considering adding a child as a joint owner on your assets, it is best to seek legal advise to determine if this is the best course of action.
Consider using a power of attorney for property instead, to give a child authority to act on your behalf without transferring legal or beneficial title.
There’s a lot of uncertainty surrounding the global economy these days. There’s the debt crisis in Europe, and a myriad of economic problems in the United States. Here in Canada, household debt has reached an all-time high and record low interest rates continue to drive up real estate prices across the country, specifically in Vancouver and Toronto.
So, what will 2012 bring for our troubled economy? No one knows for sure. During times of uncertainty it helps to focus on things that are within our control rather than trying to guess how these macro-economic factors are going to affect our personal finances.
I’m aiming to be better off financially next year by carrying out my financial plan, which is made up of short term objectives and long term goals. I’m not worried about the direction of the stock market, the price of gold, or when interest rates will rise.
What I am focused on is increasing our savings rate, aggressively paying off our mortgage, fully funding our tax free savings account, and topping up my RRSP. We’re going to keep improving our finances, one month at a time.
Will you be better off financially next year?
According to a new ING DIRECT survey, by Angus Reid, 36 per cent of Canadians think they’ll be better off financially in 2012 compared to this year:
- 20 per cent think they will be financially worse off next year, Ontarians (23 per cent) and British Columbians (22 per cent) are among the most pessimistic
- Canadians between 18-34 are most optimistic with 48 per cent saying they expect to be better off financially in 2012
Personal finance concerns for 2012:
- Thinking of the New Year, Canadians are most concerned about the amount of debt they have (19 per cent), followed by not having an emergency fund or an adequate one (16 per cent)
- Canadians who earn less than $50,000 a year are most worried about paying their bills (21 per cent) next year, while those in the $100,000+ income bracket are most concerned about not being able to save enough for retirement (18 per cent)
Financial priorities for 2012:
- Paying off credit cards and lines of credit is a priority for most Canadians (22 per cent) for 2012, followed by sticking to a budget (17 per cent ), spending less money and saving more (14 per cent)
- Canadians aged 55+ have paying off credit cards and lines of credit at the top of their list (17 per cent), with a close second being spending less money than previous year (16 per cent)
- Following a personal budget (22 per cent) is the top priority for those who earn less than $50,000 a year
What are some of your financial priorities for 2012? Do you think that you’ll be better off financially next year?