Editor’s note: This is an updated version of a story that first ran in 2012.

Registered Disability Savings Plans (RDSPs) were first introduced in 2008 to help people with disabilities and their loved ones save for their long term financial security. The RDSP was heavily modeled after the RESP, which helps parents save for their children’s education.

While these plans do resemble each other in many aspects, there are other features of the RDSP which are worlds apart from its RESP cousin. One aspect of contrast is with respect to how individuals can access the Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bonds (CDSB) entitlements carried forward from previous years.

Most advisors are very familiar with the RESP carry forward rules. Under these plans, if the subscriber does not make a contribution in any one year, unused Canada Education Savings Grant (CESG) room can be carried forward for use in another year, to a maximum CESG of $1,000 per year. Therefore, regardless of how many years of CESG grant room exists, the most that can be recovered annually is two years, or $1,000, first applying for grants in the current year, and then going back to recover unused CESG.

However, what’s most exciting about the RDSP carry forward rules (and what is drastically different from RESPs) is how the government will apply the matching rates on RDSP contributions and make the best use of the carry forwards for the benefit of the disabled individual.

Primer on grants and bonds

The federal government is providing up to two incentives for those who establish an RDSP. First, there is the CDSG, a grant paid by the federal government based on contributions and family net income, up to a lifetime maximum of $70,000. For family net income under $91,831 for 2017, the government will provide CDSGs at a matching rate of 300% on the first $500 contributed, plus 200% on the next $1,000 contributed to the plan. For family net income over $91,831 in 2017, the matching CDSG rate is 100% on the first $1,000 contributed to the RDSP. CDSGs are available annually up until the end of the year in which the RDSP beneficiary turns 49 years old.

Second, the federal government may also annually deposit a CDSB into an RDSP. The CDSB is not based on contributions to the plan, but rather is based solely on family net income. If family net income is under $45,916 for 2017, the RDSP will be eligible for a CDSB of up to $1,000. A lifetime limit of $20,000 in CDSBs may be paid to an RDSP up until the end of the year in which the beneficiary turns 49 years old.

RDSP carry forward rules

The 2010 Federal Budget introduced new carry forward rules that nowhere near resemble RESP carry forwards. Effective for 2011, RDSP beneficiaries are entitled to previously unclaimed CDSGs and CDSBs going back to 2008 when RDSPs were first introduced. In addition, they will also be able to carry forward unused CDSG and CDSB entitlements for a period of 10 years, to an annual maximum of $10,500 for CDSGs and $11,000 for CDSBs.

For CDSBs, it’s quite simple. When an RDSP is opened, any previous years’ CDSB entitlements of up to $1,000 per year will be paid into the plan over the preceding 10 years (as far back as 2008 when RDSPs were first available) plus the current year. Bonds are based on family net income in each of those years and will be paid if the RDSP beneficiary was otherwise eligible for the bonds for each year respectively. With an annual maximum of $11,000, RDSPs haven’t been around long enough to have the maximum CDSB paid into an RDSP in any one year.

For CDSGs, it gets interesting. Previously unclaimed CDSG entitlements will be paid for the previous 10 years (starting with 2008) when a contribution is made into the RDSP, up to an annual maximum CDSG of $10,500. However, the government will apply the entitlements in descending order, starting with the highest available matching rate of 300%, followed by any grant entitlements at 200%, then if applicable, 100%. In addition the CDSGs will be first applied to the oldest year, beginning in 2008 and then move forward.

Given how these carry forward rules are designed, clients who are eligible and have yet to establish an RDSP have a tremendous opportunity to take advantage of these rules by setting up an RDSP and having the government deposit significant dollars into it, with little investment.

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