Talk to clients about pullback of ODSP proposals

If your client is a recipient of the Ontario Disability Support Program (ODSP), they’re subject to the program’s income and asset tests. Now is a good time to remind your client that anticipated increases to the program’s limits on earnings and savings have been put on hold, and to ensure proper planning is in place.

Prior to 2017, program limits were low, and many ODSP recipients were limited in their ability to accumulate wealth. In 2017 the government increased the asset test for a single person on ODSP from $5,000 to $40,000, and $7,500 to $50,000 for couples. As a result, many ODSP recipients could save for the first time.

The government also increased the income exemption for cash gifts from $6,000 to $10,000. (Program eligibility based on income is determined by financial need.)

The improvements made in 2017 were well received by ODSP recipients—but they were also insufficient. The Ontario budget tabled in March 2018 looked promising as it proposed further improvements. These included:

• eliminating the limits on savings in TFSAs and RRSPs for ODSP recipients starting in September 2018;
• eliminating the limits on cash and other liquid assets for people on ODSP effective during the 2019-2020 fiscal year;
• increasing the amount of employment income an ODSP recipient can earn, without impacting social assistance benefits, from $200 per month to $400 per month beginning in the fall of 2018;
• increasing the amount that can be earned, without impacting social assistance benefits, to $6,000 per year effective 2019-2020; and
• increasing the ODSP rate by 3% annually for the next three years starting in the fall of 2018.

The new provincial government has put many proposed budget items on hold, including most of the above changes. The only proposed ODSP change to be implemented is an increase of 1.5% to the ODSP rate, effective September 2018.

As a result, clients should know that the proposed changes, including TFSAs and RRSPs as exempt assets for ODSP purposes, aren’t under consideration at this time.

Now may be a good time to look at other assets that are exempt for ODSP purposes.

If your client is a recipient of the disability tax credit, they may be eligible to open a registered disability savings plan (RDSP), which is also an exempt asset for ODSP purposes. This is a great way for your disabled client to save for the long term on a tax-deferred basis. The lifetime maximum that can be contributed to the plan is $200,000.

In addition, your client may be eligible for the Canada Disability Savings Grant (CDSG) or the Canada Disability Savings Bond (CDSB), depending on family net income. The CDSG is a matching grant whereby the government pays into the beneficiary’s RDSP up to a maximum of $3,500 per year, with a lifetime limit of $70,000. The CDSB is for low-income families, with the government contributing up to $1,000 per year to the RDSP with a lifetime limit of $20,000. A beneficiary is eligible for both the grant and bond until the end of the year the beneficiary turns 49.

From a planning perspective, if you are working with individuals who are planning for ODSP recipients, inform them of the benefits of including a Henson Trust provision in their will, with the ODSP recipient as the beneficiary. A Henson Trust is fully discretionary, so the beneficiary has no control over or direct access to trust assets. The trustee has broad discretionary powers over the trust and determines when income or capital is paid to the beneficiary. As such, a Henson Trust isn’t included in the asset test for ODSP purposes.

It’s important to note that if the Henson Trust isn’t provided for in the deceased’s will, the executor isn’t permitted to set one up, and this could adversely affect the beneficiary as an ODSP recipient.

While the new Ontario government is holding off on its predecessor’s ODSP proposals, the good news for recipients is that the government is working on a new plan for social assistance, which could include some of these improvements.

Until then, now is a great time to speak with your clients who are ODSP recipients to ensure they’re aware that the proposals from Budget 2018 aren’t being implemented—and to ensure proper planning.

Also read:

Tax support for clients with disabilities

Jacqueline Power

Tax & Estate

Jacqueline Power is an assistant vice-president with Mackenzie Investments. She can be reached at jpower@mackenzieinvestments.com.