21 July 2009 External T.I. 2009-0311851E5 - RDSP - various questions

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: The writer requested information on the ability to contribute to, and withdraw amounts from an RDSP.

Position: General answers were provided.

Reasons: There was very little background information provided and most of it concerned application of the Canada Disability Savings Act which is not administered by CRA.

July 21, 2009

Dear XXXXXXXXXX :

Re: Registered Disability Savings Plan ("RDSP")

This is in reply to your email of February 24, 2009, wherein you requested answers to questions you have on the use of RDSPs.

Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, any inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website.

While we cannot provide specific answers to your questions, we are prepared to provide the following general comments which may be of assistance.

In general terms, an RDSP is a trust arrangement established under the provisions of the Income Tax Act, to which contributions can be made for the benefit of an individual who qualifies for the disability tax credit. The CRA registers disability savings plans (DSPs) in accordance with subsection 146.4(2) of the Income Tax Act and is responsible for the compliance of the RDSPs with the provisions of the Act.

Amounts that can be paid into an RDSP may include grants and bond payments made under The Canada Disability Savings Act (the "CDSA") and The Canada Disability Savings Regulations (the "CDSR"). The administration of these programs is the responsibility of Human Resources and Skills Development Canada ("HRSDC") and questions concerning the programs and repayments of grants should be addressed to HRSDC. However, we note that the CDSR defines an assistance holdback as "at a particular time, the total amount of bonds and grants paid into an RDSP within the 10-year period before the particular time, less any amount of bond or grant paid in that 10-year period that has been repaid to the Minister." and section 5 of the CDSR provides that:

"(1) An issuer of an RDSP shall repay to the Minister, within the period set out in the issuer agreement, the assistance holdback amount if

(a) the RDSP is terminated;
(b) the plan ceases to be an RDSP as a result of the application of paragraph 146.4(10)(a) of the Income Tax Act;
(c) a disability assistance payment is made from the RDSP;
(d) the beneficiary ceases to be a DTC-eligible individual; or
(e) the beneficiary dies.

(2) The amount that must be repaid as a result of the occurrence of an event described in subsection (1) is the lesser of

(a) the assistance holdback amount of the RDSP immediately before the occurrence, and
(b) the fair market value, immediately before the occurrence, of the property held by the RDSP."

As a consequence, the withdrawal of a disability payment from a particular RDSP will, in general, result in a repayment of any grant that was contributed to the plan under the provisions of the CDSA in the 10 years preceding the withdrawal.

With respect to your examples and your questions concerning withdrawals from an RDSP, we are unable to provide any responses based on the information provided. There are a number of limitations on amounts that may be paid out of a plan in a year and these limitations depend primarily on the age of the beneficiary at the time of the payment, the assistance holdback amount at that time and whether the year is a specified year or a restricted year.

Your third question requested information concerning financial institutions that administer RDSPs. The HRSDC website provides an updated list of financial institutions that offer RDSPs, Grants and bonds. The list can be obtained on the internet at http://www.hrsdc.gc.ca/eng/disability_issues/disability_savings/update_financial.shtml.

Your final question asks for a comparison of the benefits of using an RDSP over a registered retirement savings plan ("RRSP"). An RDSP and an RRSP are specific plans designed to provide benefits to individuals in specific situations and the CRA is not in a position to provide guidance on which plan would be of greatest benefit to a particular individual. In this respect, you may wish to seek the advice of a plan administrator or qualified professional advisor on such matters.

Additional information on RDSPs may also be found on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/menu-eng.html.

We trust that our comments will be of assistance to you.

Yours truly

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch