Michelle’s example

Michelle is a low-income adult who has been eligible for the Disability Tax Credit (DTC) for her entire life. She opens an RDSP in 2017. Let’s assume that for each year since 2008, she would have been eligible for CDSG matching rates at 300% and 200% respectively, and $1,000 in CDSBs for each year. To maximize the RDSP carry forwards, Michelle (or anyone else) could contribute $3,500 into the RDSP in 2017, $4,250 in 2018, followed by annual contributions of $5,000, $5,000 and $3,250 for the 2019-2021 inclusive years. By doing so, by the end of 2021, Michelle will have caught up on all her grant and bond entitlements, and have accumulated $63,000 of grants and bonds in her RDSP. With $21,000 of private contributions, she will have $84,000 saved in her RDSP in 5 years or less. Here’s how.

When Michelle opens her RDSP in 2017, her plan will automatically receive $10,000 in CDSBs, which represents 10 years (2008 through 2017) worth of bonds. A contribution of $3,500 will attract the $10,500 annual CDSG maximum paid into the RDSP. As the table below highlights, the 300% matching rate is applied first and attracts $10,500 on the entire $3,500 contributed ($500 per year for seven years from 2008 to 2014). The remaining 3 years of entitlements at the 300% matching rate will carry forward to 2018. Since no entitlements at the 200% matching rate were obtained, the full $10,000 will carry forward to 2018 as well.

In 2018, an additional $1,000 in CDSB is paid and Michelle contributes $4,250 into the RDSP. This contribution attracts another $10,500 in grants and allows Michelle to catch up on all her carry forwards at the 300% rate; additional entitlements at the 200% level, however, will carry forward to 2019. As the table below highlights, the first $2,000 contribution attracts $6,000 (for 2017) at the 300% matching rate. The remaining $2,250 in private contributions will attract the grants at the 200% matching rate (representing carry forward from 2008, 2009 and part of 2010), for an additional $4,500 in CDSG. As a result, the maximum CDSG of $10,500 is obtained.

Following this pattern, annual contributions are scheduled each year from 2019 through 2021 (see table below for details), and are designed to maximize the annual $10,500 grant, based on the grant entitlements Michelle still has available. Therefore, it will take Michelle about five years or so to finally catch up on her grant entitlements. Once she is done, she will have an RDSP that will have amassed $84,000 in contributions, grants and bonds — a great start to securing her financial future.

Michelle’s Grant & Bond Entitlements

From 2008 through 2017 (10 years)
Accumulated CDSG Entitlement @ 300% $15,000
Accumulated CDSG Entitlement @ 200% $20,000
Accumulated CDSB Entitlement ($1,000/year) $10,000
2017 – Open RDSP
CDSBs Paid $10,000
Contribute $3,500 to the RDSP
$500 x 7 years @300% $10,500
Annual Maximum $10,500
Carry Forward to 2018
CDSG Entitlements @ 300% $1,500
CDSG Entitlements @ 200% $10,000
CDSBs Paid $1,000
Contribute $4,250 to an RDSP
First $2,000 attracts CDSG @300% $6,000
Remaining $2,250 attracts CDSG @ 200% $4,500
Annual Maximum $10,500
Maximum contributions in following years to maximize annual CDSG
2019 – Contribute $5,000
2020 – Contribute $5,000
2021 – Contribute $3,250
Total Private Contributions $21,000
Total CDSGs $49,000
Total CDSBs $14,000
Total Value in RDSP* $84,000

*excludes market value fluctuations in RDSP investments

One final point about the RDSP carry forward rules: Grants and bonds are only paid if the RDSP is opened and contributions are made on or before December 31 of the year in which the beneficiary turns 49. The carry forward entitlements do not carry forward past December 31 of the year in which the beneficiary turns 49. So, if your client turns 50 this year and decides to open an RDSP, they will not be eligible for any grants or bonds, regardless of the fact that they accumulated grant and bond carry forward up to age 49. They will lose entitlement to these bonds and grants if they wait until age 50 to establish and make a contribution to the RDSP. Therefore, for older disabled clients approaching age 49, it will be important to strategize to maximize grants and bonds before they lose them.

Also, the carry forward entitlements are only available for the previous 10 years. As we approach the 10th anniversary of the RDSP, it’s important to do the catch-up sooner rather than later, since after 2018, eligible participants will not be able to attract entitlements past the previous 10 years.

RDSPs provide a great solution for clients who have a disability, or have a family member with a disability. Don’t make the mistake to think that RDSP carry forward rules resemble those of the RESP. They are drastically different. As advisors, you play a key role in helping clients make the right decisions to get the most out of RDSPs.

Frank Di Pietro is Mackenzie Financial’s assistant vice-president of tax and estate planning. He can be reached at
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