What types of payments are made from an RDSP?
There are three types of payments made from an RDSP:
- disability assistance payments (DAPs) (these include lifetime disability assistance payments (LDAPs);
- direct transfers to another RDSP for the same beneficiary; and
- repayments under the Canada Disability Savings Act (CDSA) or designated provincial program.
Only the beneficiary or the beneficiary’s estate will be permitted to receive DAPs from the RDSP.
Disability assistance payments (DAPs)
A DAP is any payment from an RDSP to the beneficiary or to his or her estate after his or her death. It is a singular payment that can be requested at any time and may consist of contributions, grant, bond, proceeds from rollovers and income earned in the account.
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.
The RDSP issuer may allow the RDSP holder to request DAPs to be made to a beneficiary that are separate from LDAPs. Contact a participating issuer to determine if it offers plans that allow an RDSP holder to request these types of payments from a plan.
If the RDSP is a specified disability savings plan (SDSP), withdrawals can be made from the plan in the year of certification and each subsequent year without triggering the repayment of the assistance holdback amount.
Lifetime disability assistance payments (LDAP)
LDAPs are disability assistance payments (DAPs) that, once started, must be paid at least annually until either the plan is terminated or the beneficiary has died. These payments must begin by the end of the year in which the beneficiary turns 60 and, unless the year is a specified year, are subject to an annual withdrawal limit determined by the formula described below.
If an RDSP is an SDSP, payments must start being paid from the plan before the end of the calendar year following the year in which the plan last became an SDSP.
A specified year is the calendar year in which a licensed medical doctor certifies in writing that the beneficiary will not live longer than five years, and includes each of the five calendar years following the year of certification. A year will not qualify as a specified year unless the medical certificate has been provided to the issuer in or before the year in question. For example, if a doctor makes such a certification in 2015, but the issuer is not provided with the certification until 2016, only the years from 2016 to 2020 are specified years for the RDSP.
If the RDSP is an SDSP, the specified year includes each subsequent calendar year. Otherwise, the specified year includes each of the five years following the year of certification.
There is no maximum limit on the amount of DAPs or LDAPs that can be paid to the beneficiary in a specified year (if the plan is not an SDSP). However, in all cases 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.
Repayments under the CDSA
Under the CDSA, the assistance holdback amount is generally required to be repaid to ESDC if any DAP is paid from the RDSP.
The assistance holdback amount is defined in the Canada Disability Savings Regulations. In general terms, it is the total amount of bond and grant paid into a plan within the last 10 year period, less any part of that amount that has been repaid to ESDC.
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.
How to calculate the maximum LDAP
The amount of the LDAP cannot be more than the amount calculated using the following formula:
A ÷ (B + 3 − C) + D
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; and
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.
How to calculate the 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; and
- the amount determined by the formula:
A × B ÷ C
A = the amount of the DAP;
B = the amount by which the total contributions made to any RDSP of the beneficiary that exceed the total non-taxable portion of all DAPs previously made from any RDSP of the beneficiary; and
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.
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