RDSP Bulletin No. 4
This bulletin is the fourth in a series published by the Registered Plans Directorate. The series discusses issues that arise from time to time about the administration of registered disability savings plans (RDSP) and the Income Tax Act. This publication is intended mainly for use by RDSP issuers.
This fourth bulletin describes changes to section 146.4 of the Act as introduced in Bill C-45. It explains changes made to the law to allow the rollover of registered education savings plan (RESP) funds into an RDSP. It describes changes made to the maximum withdrawal limits and minimum withdrawal requirements. It includes information for extending the lifetime of an RDSP when the beneficiary is not DTC-eligible. It highlights changes made to the time limits for submitting a DSP for registration and for closing a plan after a transfer takes place. It summarizes the change in legislation that reduces the issuer’s obligation of providing plan information to another issuer upon a plan transfer. This bulletin also includes information for amending specimen plans to allow for these changes and, when applicable, describes the administrative requirements of an issuer to carry out these changes.
Bill C-45 received Royal Assent on December 14, 2012. It amends the Act as follows:
- The definition of contribution under subsection 146.4(1) now shows an education savings rollover amount to be a contribution in certain circumstances. The definition is also amended so that a specified RDSP payment and an accumulated income payment will not be considered an advantage for the purposes of subsection 205(1) of the Act.
- New term specified maximum amount under subsection 146.4(1) defines the yearly maximum withdrawal limit for a primarily government assisted plan (PGAP).
- Subparagraph 146.4(1.2)(c)(ii) now requires a plan’s specified disability savings plan (SDSP) designation to be removed if an education savings rollover is accepted into the plan.
- New subparagraph 146.4(1.2)(c)(v) requires a plan’s SDSP designation to be removed if the plan’s beneficiary is no longer DTC-eligible.
- Paragraph 146.4(1.2)(d) now sets a yearly minimum withdrawal amount that must be paid from an SDSP.
- The issuer requirement to notify the government of a new plan or to close a transferring plan within a certain time period is removed from paragraphs 146.4(3)(a) and (b).
- Subparagraph 146.4(4)(n)(i) now sets a new yearly maximum withdrawal limit for plans in a PGAP year.
- New paragraph 146.4(4)(n.1) requires a minimum withdrawal amount to be paid to a beneficiary in each calendar year for which they turn 60 years of age or older.
- Paragraph 146.4(4)(o) now requires an issuer to transfer historical plan information to the receiving issuer during a transfer only if that information was not previously given to Human Resources and Skills Development Canada (HRSDC).
- Subparagraph 146.4(4)(p)(ii) now includes closure rules for a plan operating under a DTC election.
- New subsection 146.4(4.1) includes the rules for filing a DTC election.
- New subsection 146.4(4.2) includes rules outlining the duration of a DTC election.
- New subsection 146.4(4.3) includes a transitional rule that allows plans that are required to terminate in 2012 or 2013 to stay open until the end of 2014.
- Paragraph 146.4(8)(c) now states that to complete a plan transfer, the current issuer must transfer historical plan information to the receiving issuer only if that information was not previously given to HRSDC.
The legislation for the transitional rule in subsection 146.4(4.3) applies after March 28, 2012. The legislation for issuer filing requirements for plan registration and plan transfer applies after December 13, 2012. The rules in paragraph 146.4(4)(o) and paragraph 146.4(8)(c) also apply after December 13, 2012. All other changes to the legislation detailed in this bulletin apply after December 31, 2013.
Education savings rollover to RDSP
The definition of contribution under subsection 146.4(1) of the Act now states that an accumulated income payment (AIP), transferred into an RDSP from an RESP, is not considered a contribution to the plan except for the purposes set out under paragraphs 146.4(4)(f) to (h) and (n) of the Act. An AIP is considered an education savings rollover amount when paid into an RDSP.
An AIP is an amount—usually paid to the subscriber—of the income earned from an RESP. It does not include the payment of educational assistance payments, payments to a designated educational institution in Canada, the refund of contributions to the subscriber, transfers to another RESP, repayments under the Canada Education Savings Program or repayments under a provincial program.
The education savings rollover to RDSP measure is optional. Specimen plans may need amending if an issuer wants to offer this rollover measure to their clients. The specimen plan text must allow the RDSP to accept these amounts. It must also specify that these amounts are only considered contributions for the purposes of paragraphs 146.4(4)(f) to (h) and (n) of the Act. These paragraphs apply as follows:
- The RDSP must not receive an education savings rollover amount if the RDSP beneficiary:
- is not DTC-eligible at the time of the rollover;
- died before the rollover is made;
- turns 60 years of age or older in the year that the rollover is made; or
- is not resident in Canada.
- The education savings rollover amount counts as a contribution for determining the beneficiary’s remaining lifetime contribution room.
- The RDSP holder must agree in writing to have the amount rolled over to the RDSP.
- The education savings rollover amount counts as a contribution when determining if the RDSP is a PGAP.
The education savings rollover is a tax-deferred transfer from an individual’s RESP to their RDSP. When making a disability assistance payment or lifetime disability assistance payment, the education savings rollover portion of the payment should be treated as plan earnings and must be counted as a taxable amount for reporting purposes.
Administration of the education savings rollover
An education savings rollover can take place if the following conditions are met:
- the beneficiary of the RDSP is a beneficiary of the RESP that is rolling over income;
- the RESP allows accumulated income payments; and
- the beneficiary of the RESP has a severe and prolonged mental impairment that prevents them from enrolling in a qualifying educational program at a post-secondary educational institution or the RESP must be either:
- open for at least 10 years, where each beneficiary in the RESP is at least 21 years of age and is not eligible to receive educational assistance payments at the time the rollover is made; or
- open for at least 35 years.
The subscriber of the RESP must, in writing, jointly elect with the RDSP holder to have the rollover take place. The election document must contain the prescribed information that is listed in the next section. The RESP promoter must send the document to the RDSP issuer and keep a copy of it on file. This will satisfy the RESP promoter’s requirement to file the election with the Canada Revenue Agency. The RDSP issuer must keep the document on file and report the rollover to HRSDC through the Canada Disability Savings Program system.
The RESP must terminate before March of the year following the education savings rollover. All Canada education savings grants, Canada learning bonds and provincial payments must be repaid to HRSDC. An RESP promoter must ensure that their RESP specimen plan terms do not contravene this condition. This may require an amendment to the RESP specimen plan.
Education savings rollover election - prescribed information
The following information must be included in the education savings rollover election document:
- Rollover amount
- RDSP issuer name, specimen plan name, specimen plan number, and contract number
- RDSP / RESP beneficiary name, SIN
- RDSP holder name, SIN/BN
- RESP suscriber name, SIN
- RESP promoter name, specimen plan name, specimen plan number and contract number
- RESP promoter’s address
- Space for the RESP subscriber’s signature and date
- Space for the RESP promoter's (authorized person) signature and date
- Space for the RDSP holder’s signature and date
- Space for the RDSP issuer’s (authorized person) signature and date
Withdrawal requirements from an SDSP
Previously, the yearly minimum withdrawal requirement from an SDSP applied only to plans in a PGAP year.
Now, the total yearly amount of withdrawals from all SDSPs (PGAP and non-PGAP) must be at least equal to the legislated maximum formula result. This requirement does not apply if it is the first year of the SDSP’s existence.
The specimen plan does not require amending; however, if the issuer has an SDSP election document, they must amend the document to include this change to the SDSP withdrawal rules. The issuer must also update the election document to require the removal of a plan’s SDSP designation when an education savings rollover is accepted into the plan. The election document must also be updated to require the removal of a plan’s SDSP designation when the beneficiary is no longer DTC-eligible. More information for adding these changes to the SDSP election document can be found in updated RDSP Bulletin No. 2R1.
Maximum withdrawal limits for an RDSP (non-SDSP) in a PGAP year (non-specified year)
Previously, in this situation, the total amount of yearly withdrawals from a plan in a PGAP year was limited to the legislated maximum formula result. The total amount of yearly withdrawals from the plan had to equal the legislated maximum formula result if the beneficiary turned 60 years of age or older in the year.
Now, the total amount of yearly withdrawals cannot be more than a legislated specified maximum amount. The specified maximum amount is the greater of the legislated maximum formula result and the sum of:
- 10% of the plan’s fair market value; and
- all periodic payments from locked-in annuity contracts.
The fair market value does not include amounts held in locked-in annuity contracts. Also, if the plan disposes of a locked-in annuity contract during the calendar year, the periodic payment amount will contain a reasonable estimate of amounts that would have been paid from the annuity into the plan in that year.
If the beneficiary turns 60 years of age or older in the PGAP year and the plan receives an RDSP transfer, the yearly withdrawal limit must exclude a certain amount that is paid from the plan after the transfer. This amount includes withdrawals made to pay any remaining withdrawal requirements from the prior plan. This amount also includes any withdrawal that is made that would have been an allowable withdrawal from the prior plan in the year had the transfer not occurred.
Note that if the beneficiary turns 60 years of age or older in the year, both this maximum withdrawal limit and the minimum withdrawal requirement—see next section—must be respected. Therefore, in this situation, the total amount of yearly withdrawals must not be less than the legislated maximum formula result and must not be more than the specified maximum amount.
The issuer must amend the withdrawal section(s) of their specimen plan to express these new withdrawal limits for an RDSP in a PGAP year.
Minimum withdrawal requirement for all plans
Previously, the Act did not require a yearly minimum amount to be paid to a beneficiary who turns 60 years of age or older in a non-PGAP year.
Now, if the beneficiary turns 60 years of age or older in a calendar year, the yearly minimum amount that must be paid from an RDSP—PGAP and non-PGAP—in that year is the legislated maximum formula result.
Note that if the issuer’s specimen plan only allows lifetime disability assistance payments then the legislated maximum formula result acts as both a minimum and maximum. So, the total amount withdrawn from a plan for the year must equal the legislated maximum formula result.
The issuer must amend the withdrawal section(s) of their specimen plan to express this new minimum withdrawal requirement.
Extending the life of a plan for up to five years if the beneficiary becomes DTC-ineligible
Previously, a plan was required to terminate within two calendar years from the time the beneficiary became DTC-ineligible.
Now, if the RDSP holder elects to keep the plan open, the plan can remain open for up to five calendar years. The following conditions must be met in order for the plan to stay open:
- A medical doctor must certify in writing that the beneficiary will likely become DTC-eligible at some point in the future;
- The holder must make an election to keep the plan open by providing the medical certificate to the issuer. The holder must make this election within two calendar years from the time the beneficiary loses their DTC-eligibility status; and
- The issuer must notify HRSDC of the election through the Canada Disability Savings Program system.
After an election is established it will be valid until the earlier of the beginning of the first calendar year that the beneficiary becomes DTC-eligible again and the end of the fifth calendar year of continuous DTC-ineligibility.
The issuer must close the plan by the end of the sixth year of the beneficiary’s continuous DTC-ineligibility.
A temporary measure is in place that allows plans that should close in 2012 or 2013 because of the beneficiary’s DTC-ineligibility, to stay open until December 31, 2014 without the holder having to make an election. If the holder wishes to extend the plan’s life for the full five years, the holder must make an election in 2014.
The issuer must amend the termination section of their specimen plan to require that if a DTC election has been made, the plan must close by the end of the sixth calendar year of continuous DTC-ineligibility.
Submission timeframes for registration
Previously, the issuer of an RDSP was required to submit notification of an RDSP’s existence to HRSDC within 60 days of opening the plan. If a plan was opened due to a transfer, the issuer of the prior plan was required to terminate that plan within 120 days of the opening of the new plan.
These filing requirements are now removed from the legislation. In their place is the requirement to submit notification of registration or to terminate the plan without delay. In the future, any filing deadlines for registration or deadlines for terminating a transferring plan may be addressed in the Issuer Agreements that are signed with HRSDC.
The issuer should update their specimen plan text to accommodate this more flexible wording, however it is a relieving provision and therefore not a required amendment.
Transfer of plan information to receiving issuer
Previously, the issuer of an RDSP was required to provide all plan information to the new issuer if it was needed for the continuing administration of the beneficiary’s new plan. Now, the legislation requires the transfer of this information from one issuer to another only if it was not previously provided to HRSDC.
The issuer should update their specimen plan text to accommodate this more flexible wording however it is a relieving provision and therefore not a required amendment.
How to contact us
Contact us at the Registered Plans Directorate if you have any questions about this RDSP bulletin.
Our telephone enquiries service is available Monday to Friday from 8:00 a.m. to 5:00 p.m., Eastern Time (with a voice mailbox system to take messages outside those hours):
In the Ottawa area
For service in English: 613-954-0419
For service in French: 613-954-0930
Toll-free elsewhere in Canada
For service in English: 1-800-267-3100
For service in French: 1-800-267-5565
RDSP issuers who need guidance on specific registration issues can write to us at the Registered Plans Directorate, Canada Revenue Agency, Ottawa ON K1A 0L5, or fax us at 613-952-0199.
We welcome feedback on this bulletin. Email your comments to: email@example.com
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