RDSP Bulletin No. 3

October 16, 2012

This bulletin is the third 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 third bulletin describes changes to subsection 60.02(1) and section 146.4 of the Act as introduced in Bills C-13 and C-38. It provides information for amending specimen plans to allow the rollover of specified pension plan funds into an RDSP. It also provides information for amending specimen plans to allow a qualifying family member to become an RDSP holder.

Bill C-13

Bill C-13 received Royal Assent on December 15, 2011. It amended the definitions of eligible individual and eligible proceeds under subsection 60.02(1) of the Act. These amendments allow payments (that are not part of a series of periodic payments or part of an actuarial surplus) from the specified pension plan of an RDSP beneficiary's deceased parent or grandparent to be rolled into the beneficiary's RDSP. This legislation applies after March 3, 2010.

Amending the specimen plan

The specified pension plan rollover measure is optional. Specimen plans may need amending if issuers want to offer this rollover measure to their clients. The specimen plan text must allow the RDSP to accept these payments. It must also specify that these payments are only considered RDSP contributions for the purposes of paragraphs 146.4(4)(f) to (h) and (n) of the Act. These paragraphs apply as follows:

1. The RDSP must not receive a specified pension plan payment if the RDSP beneficiary:
   • is not DTC eligible at the time of the payment,
   • died before the payment is made,
   • is 60 years old or older sometime in the year that the payment is made, or
   • is not resident in Canada.
2. The specified pension plan payment counts as a contribution for determining the beneficiary's remaining lifetime contribution room.
3. The RDSP holder must agree to have the payment rolled over to the RDSP.
4. The specified pension plan payment counts as a contribution when determining whether the RDSP is a primarily government assisted plan.

To record the rollover, the issuer may use form RC4625, Rollover to a Registered Disability Savings Plan (RDSP) under Paragraph 60(m) or they may create their own rollover form.

Bill C-38

Bill C-38, received Royal Assent on June 29, 2012. It amended the definitions of disability savings plan and qualifying person under subsection 146.4(1) of the Act and introduced a definition for qualifying family member. New subsections 146.4(1.5) to (1.7) and (13) of the Act present rules that an RDSP issuer must apply after they enter into an arrangement with a qualifying family member. New subsection 146.4(14) of the Act eliminates any issuer liability for entering into an arrangement with a qualifying family member if, at the time the arrangement is entered into, it is the issuer's opinion that the beneficiary's contractual competence is in doubt. This legislation applies after June 28, 2012.

Disability savings plan

The definition of disability savings plan is amended to allow a qualifying family member to enter into a disability savings plan arrangement with an RDSP issuer. A qualifying family member who meets the amended definition of qualifying person can enter into a disability savings plan arrangement with an RDSP issuer before January 1, 2017. If a qualifying family member, after entering into an arrangement with an RDSP issuer, wishes to transfer the RDSP to a new plan for the beneficiary, the amended disability savings plan definition allows the individual to transfer plan assets into another RDSP.

Qualifying family member

This new definition considers a legal parent Footnote 1 to be a qualifying family member. A spouse or common-law partner can be a qualifying family member if they are not living apart from the beneficiary due to a breakdown in their marriage or common-law partnership.

Qualifying person

The definition of qualifying person is amended to consider a qualifying family member to be a qualifying person. A qualifying family member is a qualifying person if, at the time the RDSP is opened, the following conditions are met:

• the beneficiary is over the age of majority,
• the beneficiary is not the beneficiary of another RDSP,
• no entity with legal authorization to act on behalf of the beneficiary exists, and
• after reasonable enquiry, the issuer considers that the beneficiary is unable to enter into an arrangement with the issuer.

A qualifying family member cannot become a qualifying person due only to the surrender or assignment of a previous holder's rights under the RDSP.

Issuer's responsibility to notify beneficiary of RDSP

If a qualifying family member opens an RDSP and becomes the plan holder, the issuer must promptly notify the beneficiary of this fact in writing. The notice must include the information detailed under the following section entitled Replacing a holder who is a qualifying family member.

The legislation requires the issuer to request that the qualifying family member provide them with all of the beneficiary's personal information that is needed for the administration and operation of the beneficiary's RDSP. This could include information such as the beneficiary's name, address, and social insurance number.

Replacing a holder who is a qualifying family member

A beneficiary may notify the issuer of their intent to become plan holder of their RDSP. If a competent tribunal, an authority under provincial law, or, after reasonable inquiry, the issuer determines the beneficiary to be contractually competent, the qualifying family member will cease to be a holder of the RDSP and the beneficiary will become the new plan holder.

If an entity becomes legally authorized to act on behalf of the beneficiary, the entity must notify the issuer of this fact as soon as possible. Once the issuer is notified, the authorized entity replaces the qualifying family member as plan holder.

Handling disputes when a qualifying family member is holder

If a qualifying family member is the holder of an RDSP and there is a dispute regarding their right to be the plan holder, they are required to avoid actions that would reduce the fair market value of the plan's property. (This does not include reasonable payments from the plan that are necessary to ensure the beneficiary's care and well-being). This requirement will last until the earlier of the dispute having ended or until a new entity is named as plan holder.

Eliminating the issuer's liability for entering into a plan with a qualifying family member

If, the issuer makes a reasonable enquiry into the beneficiary's contractual competence before opening a disability savings plan arrangement with a qualifying family member and it is the issuer's opinion that the beneficiary's ability to enter into a contract is in doubt, the issuer will not be held liable for opening the arrangement with the qualifying family member.

Amending the specimen plan

The qualifying family member measure is optional. Specimen plans may need amending if an issuer wants to allow qualifying family members to enter into disability savings plan arrangements with them. To offer this measure an issuer must amend the specimen plan text to:

• define qualifying family member,
• list the conditions that allow a qualifying family member to be a qualifying person and stipulate that a qualifying family member can only enter into a disability savings plan arrangement before January 1, 2017,
• allow the qualifying family member (who is the plan holder) to transfer plan assets to another RDSP for the beneficiary,
• require the issuer to notify the beneficiary that a new plan is opened for them,
• require the issuer to request the qualifying family member provide them with the beneficiary's personal information,
• detail the process for replacing the qualifying family member, as plan holder, with the beneficiary or a qualifying person,
• detail the qualifying family member's obligations when their right to be holder is under dispute, and
• provide a statement that removes the issuer's liability from entering into a disability savings plan arrangement with a qualifying family member when at the time the arrangement was entered into, the issuer had made a reasonable enquiry into the beneficiary's contractual competence and it was the issuer's opinion that the beneficiary's contractual competence was in doubt.

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: rpd/dre@cra-arc.gc.ca

Footnote 1 Existing RDSP legislation allows a legal parent to be a qualifying person in certain circumstances. For the purpose of this bulletin and for the administration of the new qualifying family member legislation, only a legal parent who meets the conditions under the section entitled qualifying person is to be considered a qualifying family member. (Return to footnote 1 source paragraph)

Date modified:

2012-10-16