Despite its austerity, this budget was a huge boon for disabled clients.
“There were a number of very positive changes to the RDSP,” says Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management.
Under certain circumstances, a plan-holder can now withdraw up to 10% of the plan’s fair market value at one time, and there’s now a minimum required withdrawal for certain types of RDSP.
Another positive change: The government rolled back penalties to plan-holders who withdraw matching grants and bonds. Previously, if a client got $10,000 in grants over the prior ten years and withdrew even $1, says Rachel Blumenfeld, partner with Miller Thomson LLP, the issuer had to repay the entire $10,000. Now, under the new proportional repayment rule, the issuer only has to repay $3 for every $1 withdrawn.
Herberts Berzins, a Whitby, Ont.-based consultant with Investors Group, applauds this measure, but says clients shouldn’t view the RDSP like a bank account; it’s meant for long-term savings, to be withdrawn primarily after age 60.
There’s also good news for parents whose children become disabled before graduating high school.
“They’ve allowed a rollover of RESP growth for the disabled person if they aren’t able to attend [school]; you can roll that into an RDSP tax-free,” Golombek says.
The government’s also removed the roadblocks for disabled adults to obtain RDSPs.
Previously, some adults had trouble entering into RDSP contracts because their mental capacities were in doubt. In some provinces and territories, the only way they could open RDSPs was if a court declared them legally incompetent and named legal guardians.
That’s an expensive process. Berzins says at least one of his clients held off opening an RDSP because of the cost.
A parent or spouse* can now be a plan-holder for a disabled adult. This temporary provision will be in effect until 2016; allowing the provincial and federal governments to harmonize their RDSP regulations over the next four years.
Blumenfeld, who was involved in the government’s fall consultation process for RDSP improvements, says issuers wanted clarification on who could open them. She says some institutions were opening the accounts for parents and spouses anyway. Now, that’s officially allowed.