How RDSP changes could affect your clients

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How RDSP changes could affect your clients

When the 2019 federal budget was presented March 19, 2019, it revealed changes to the Registered Disability Savings Plan (RDSP). If you have clients who might be affected, here’s what you need to know about how the proposed legislation could help them once the changes take effect.

Who is affected: A person with a disability (or parents of a child with a disability) who experiences an improvement that disqualifies them for the disability tax credit (DTC).

The current legislation: Currently, if a beneficiary stops being eligible for the DTC, contributions can no longer be made to the RDSP, and no further Canada Disability Savings Grants or Canada Disability Savings Bonds can be paid into it. The plan must be closed and all money paid out by the end of the year following the first full year during which the beneficiary loses DTC eligibility.

The proposed legislation: The existing time limit on the period an RDSP can remain open after the beneficiary becomes ineligible for the DTC would be removed beginning in the 2021 tax year. The budget also proposes that written certification from a licensed medical doctor or nurse practitioner stating the beneficiary is likely to become DTC-eligible again in future would no longer be required to keep the plan open.

Why it matters: Currently, if a person stops being eligible for the DTC, up to 10 years’ worth of grants and bonds would have to be paid back. Then the RDSP issuer would pay any remaining assets to the beneficiary. The proposed legislation includes new rules governing repayment that would see ever- declining portions of the grants and bonds being repaid each year after the beneficiary turns 50.

What happens in the interim: A transitional rule will ensure that an RDSP issuer will not be required to terminate a plan after March 18, 2019 and before 2021 for the sole reason that a beneficiary loses DTC eligibility.

While the new rules have been described as being beneficial to disabled people and more generous than the previous rules, do remember that they are still in the proposal stage. Be sure to check on updates to their status before advising any of your clients who have, or are planning to open, an RDSP