January 5, 2012
One in every ten Canadian families is affected by a disability. Depending on the nature of the disability and the person’s financial status, he or she may be eligible to receive government assistance to help with various costs of living or even to help with saving for the future. The following are two options for providing some financial security to family members with disabilities:
I. Registered Disability Savings Plan (RDSP)
A) Long-term security for disabled persons
The RDSP is a savings plan intended to help parents save for the long-term financial security of a child eligible for the Disability Tax Credit. Contributions to an RDSP are not tax deductible and can be made up until the year the beneficiary turns 59.
An RDSP is available for a beneficiary who is: (a) under the age of 60; (b) a Canadian resident with a SIN; and (c) eligible for the Disability Tax Credit (requires a “severe and prolonged impairment”). Anyone can contribute to the RDSP with the written permission of the RDSP holder. There is no annual contribution limit, but there is a lifetime contribution limit of $200,000.
C) Government contribution
The Government pays a matching grant and/or bond (paid until the year the beneficiary turns 49) depending on the amount contributed and the beneficiary’s family income. Grants and bonds must remain in the RDSP for at least 10 years; and, if used, they must be paid back. The Government will contribute a lifetime limit of $20,000 in bonds and a lifetime limit of $70,000 in grant money. A beneficiary is allowed to carry forward any unused grant and/or bond entitlements for a 10-year period preceding the opening of the plan, going back only as far as 2008 (for unused grants the maximum is $10,500 and for unused bonds the maximum is $11,000).
D) Tax and other implications
The earnings in an RDSP accumulate tax-free until money is taken out. Proceeds from a deceased parent’s RRSP, RRIF and RPP can be rolled over into the RDSP of a financially dependent child with a disability. The maximum transfer amount is $200,000, and this amount will be reduced by all contributions and rollover transfers previously made to any RDSP. In Ontario, RDSPs have no impact on social assistance (that is, they are fully exempt when determining a beneficiary’s eligibility for social assistance).
E) Opening an RDSP
An RDSP can be opened at any bank. Where a beneficiary is over the age of majority and is legally able to enter into a contract, the RDSP can be established by the beneficiary him/herself and/or the legal parent who is, at the time the plan is established, the holder of a pre-existing RDSP of the beneficiary. If the beneficiary has reached the age of majority but is not legally able to enter into a contract, another qualified person may open an RDSP for the beneficiary and become a holder:
(a) a guardian, tutor or curator of the beneficiary or an individual who is legally authorized to act for the beneficiary;
(b) a public department, agency or institution that is legally authorized to act for the beneficiary, or
(c) a legal parent who is legally authorized to act on behalf of the beneficiary.
If a holder who is not the beneficiary is no longer qualified to be a holder (e.g. he/she/it is no longer the legal guardian or has died), the following may be added to the plan as successor or assignee of a holder: (a) the beneficiary; (b) the beneficiary’s estate; (c) any other person who is already a holder; (d) any other person who is qualified to be a holder, or (e) a legal parent of the beneficiary who has previously been a holder of the RDSP.
II. Ontario Disability Support Program (ODSP)
A) Social assistance for disabled persons
The ODSP helps people with disabilities who are in financial need of living expenses (food, clothing, housing, etc.). A person may qualify for Income Support if he/she is:
- 18 years of age or older;
- lives in Ontario;
- in financial need, and
- has a substantial physical or mental disability that
- is expected to last a year or more, and
- makes it hard for him/her to care for him/herself and take part in community life or work.
Eligibility depends upon one’s financial situation and disability status. You must be deemed to be living in poverty in order to qualify for support. If you are receiving benefits under the ODSP you cannot own more than $40,000 in liquid assets. Therefore, if you inherit a sizeable amount of money or other assets, you may be disqualified from receiving benefits under the ODSP. However, transferring a house to a disabled beneficiary does not disqualify the recipient from receiving benefits under the ODSP.
B) How to apply
The application process can be done either online or in person. An interview is conducted, which lasts approximately an hour and a half. In the interview, it will be determined whether the person qualifies financially for benefits under the ODSP. If so, the person is given a Disability Determination Package to determine if he/she meets the definition of “a person with a disability.” Once the forms are completed, they are to be mailed to the Disability Adjudication Unit in Toronto.