RDSP Changes Implemented

Recent changes in section 60.02 of the Income Tax Act, will enable a rollover of an RRSP, RRIF or RPP or SPP (Saskatchewan Pension Plan) to the eligible beneficiary of an Registered Disability Savings Plan (RDSP). The beneficiary must be the child or grandchild of a deceased annuitant who was financially dependant on the deceased for support for reasons of mental or physical infirmity.

Form RC4625 Rollover to a Registered Disability Savings Plan (RDSP) enables the transaction. The receiving RDSP issuer must keep this form and any relevant documentation as a record of the rollover transaction. A separate form must be completed for each rollover. Completing this form is the final step in the rollover process.

Any rollover amounts are included in the RDSP lifetime contribution limit for the beneficiary. Unlike contributions to the RDSP, rollover proceeds will be reported as taxable income when paid out.

Bill C-3 implemented two other important measures for RDSP beneficiaries. Beneficiaries with shortened life expectancies will be able to make withdrawals without triggering penalties under the 10-year repayment rule. An election must me made and certification by a physician is required. This measure is effective as of June 26, 2011. More information is available here.

As well, applicants for the Disability Tax Credit (DTC) will be able to appeal a determination in all circumstances. A requirement for opening an RDSP is eligibility for the DTC. Before this law was enacted, the DTC could be denied if applicants had no taxable income, and there was no avenue for appeal. Because of this, some disabled residents were not able to open RDSP accounts. Contributions to RDSPs may be made by others such as parents, siblings and supporters of the disabled, so eligibility for the DTC by the beneficiary is of great importance.

ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Investment Income Planning