Last updated: November 02 2023

Year End Planning:  Tapping into the RDSP

Evelyn Jacks

What are the rules on withdrawal?  Maximum annual withdrawal amounts are established based on life expectancies but an ability to encroach on capital is also to be provided. Only the beneficiary and/or the beneficiary's legal representatives can withdraw amounts from an RDSP.

Are withdrawals reported as income?  No they are not income to the beneficiary but the Canada Disability Savings Grant (CDSG), and the Canada Disability Savings Bond (CDSB), the investment income earned tax sheltered while in the plan, and any proceeds from rollovers from other registered plans must be included in income.

Is pension income splitting possible?  No, the withdrawal amounts do not qualify for pension income splitting.

What amounts can be rolled over into an RDSP?  Amounts from a deceased individual's RRSP (Registered Retirement Savings Plan), RRIFs (Registered Retirement Income Funds), lump sums from RPPs (Registered Pension Plans) or SPP (Specified Pension Plans), and PRPPs (Pooled Registered Pension Plans) can be rolled over into the RDSP of the deceased financially dependent child or grandchild who has physical or mental function impairments. The amounts cannot exceed the RDSP contribution limit of $200,00 and will reduce the available RDSP contribution room. 

Note if the beneficiary no longer qualifies for the Disability Tax Credit, the rollover occur before the end of the fifth taxation year throughout which the beneficiary no longer qualifies. 

Note that these amounts are considered to be private contributions not eligible for government matching grants or bonds. They will also be included in the taxable portion of withdrawals made to the beneficiary.  

It is also possible to rollover funds from a Registered Education Savings Plan (RESP). 

How to report the rollover.  Use Form RC4625, Rollover to a Registered Disability Savings Plan (RDSP) Under Paragraph 60(m) or the form provided by the RDSP issuer.  CRA will issue a tax slip for the income inclusion (such as a T4A, T4RSP, or T4RIF). The taxpayer then makes a deduction for the same amount on the tax return.  In the case of a deceased person, the amounts are included and deducted on the final return.  

The rules are different for the rollover of funds from an RESP. In that case,  record the rollover on Form RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan. Tax slips will not be issued for rollover from an RESP and there will be no income reporting as a result.

Anti-avoidance rules.  Similar rules are in place for RDSPS as for RRSPs, RRIFs and TFSAs, after March 22, 2017. Specifically RDSPs are subject to a tax on non-qualified advantages, a tax on tax advantages and a tax on prohibited investments.  Form RC298 E (22) Advantage Tax Return for RRSP, TFSA or RDSP issuers, RESP promoters or RRIF carriers must be filed.   The previous RDSP anti-avoidance rules will continue to apply for RDSP transactions undertaken prior to March 23, 2017.

How to Make a Difference:  Educate people in your circle of influence on the nuances of the RDSP to make a future brighter for a disabled person in your community.