Budget news for RDSP-eligible clients and their families

By Katie Keir | March 1, 2018 | Last updated on December 6, 2023
5 min read

The federal budget included welcome news for adults eligible for the Registered Disability Savings Plan (RDSP) but whose contractual capacity may be in question.

Currently, the Income Tax Act “requires that the holder of an individual’s RDSP be the individual’s legal representative, as recognized under provincial or territorial law,” according to Budget 2018’s Tax Measures supplement.

The issue with the requirement is that establishing a legal guardian for such people, in many provinces, involves “a lengthy and expensive process that can have significant repercussions for [disabled] individuals,” the document says.

To address this, the government has extended a measure that allows an adult disabled person’s parent, spouse or common-law partner (a “qualifying family member”) to become the holder of that person’s RDSP—so long as they are living with the disabled person—without becoming their legal representative. This measure was first introduced in Budget 2012, was renewed until 2018 in the 2015 budget, and will now be in effect until 2023.

To become the holder of the RDSP, the qualifying family member must simply open and become the holder of an RDSP at a participating financial institution on behalf of their family member. This requires that the RDSP issuer, after inquiry, agrees the plan beneficiary’s contractual competency is in doubt.

In a February 2013 bulletin, the government noted that, for the purposes of consenting to the disclosure of the beneficiary’s personal information when completing an application for a Canada Disability Savings Grant or Bond, a qualifying family member is considered a legal representative. So, they can sign RDSP application forms as the beneficiary’s legal representative (e.g., the declaration and consent section in Part B requires such a signature).

When introduced in 2012, the qualifying family member measure helped families overcome “a huge barrier,” where they were “looking to benefit from the RDSP and had individuals who were very much eligible for the program,” says Curtis Davis, senior consultant for tax, retirement and estate planning services at Manulife. Over the last six years, he adds, the situation has “certainly improved, regarding the administration of and accessibility of the RDSP.”

Read: RDSPs: Plan your 10 years

Several regions have yet to introduce a streamlined process for appointing legal guardians, which is why the federal government continues to encourage provinces and territories to find ways to “accommodate the needs of potential RDSP beneficiaries by developing appropriate, long-term solutions to address RDSP legal representation issues.”

While B.C., Saskatchewan, Manitoba, Newfoundland and Labrador, Alberta and the Yukon have streamlined the process, the federal government’s extension of the qualifying family member measure will help disabled individuals and their families in Ontario, Quebec, New Brunswick, Nova Scotia, P.E.I., Nunavut and the Northwest Territories, says David Truong, senior consultant at National Bank Private Banking 1859 in Montreal.

“Here in Quebec, it’s a little bit complicated to nominate someone,” he says. In Alberta, by contrast, “the court can appoint a trustee or legal guardian, and there are just some forms to fill out. In B.C., there’s a representation agreement, and in Manitoba, there’s what is called a substitute decision maker. Every province has their own rules to nominate someone,” he adds.

Issues to consider

The definition of a legal representative is much broader than that of a qualifying family member (which is limited to a beneficiary’s parent, spouse or common-law partner).

Says Truong: “A legal representative can be anybody you wish it to be; it could be your sister, brother, uncle or aunt. But the procedure for nominating someone is, of course, dependent on the province and that’s why we have this temporary measure.”

As such, provinces that don’t yet have streamlined processes need to work on solutions before 2023, even if it’s likely the government will extend the measure. The measure has been in place for six years, says Truong, but RDSP holders may need more than a stopgap.

“Sometimes you know [a person] is disabled from birth, but sometimes it can just happen,” he adds. “I could have an accident today and it would then take time for someone to represent me” with respect to the RDSP, absent this extended measure.

Even if a disabled person’s capacity has always been in doubt, says Davis, “going through the process of getting a PoA [or legal representative] when someone is already mentally incompetent is much more challenging than [where someone] is competent and goes to a lawyer. A plan might not be in place because it’s almost as if you can’t put it in place due to that challenge.”

Read: All about the disability tax credit

The extended measure “is simple and good for families,” says Davis. In the budget, he adds, “The government gives themselves the options to extend or, perhaps, to make [this setup] permanent,” if change isn’t achieved at the provincial level by 2023.

From qualifying family member to legal representative

The process for changing the holder of an RDSP from a qualifying family member to a legal representative is simple. “Usually the qualifying member opens the account, and then the legal representative—that could be the same person—comes in,” taking over as the holder of the plan, says Truong. The legal representative would contact the RDSP issuer to inform them of the change or, where a disabled person’s contractual competency is later determined to be sound, the beneficiary would contact the issuer.

In a 2012 notice, the government notes that should a disabled adult become contractually competent after a family member opens his RDSP, he can be added as a holder of the plan or become the sole holder.

Qualifying disability trusts and new filing requirements

The 2018 budget has proposed that certain trusts offer up additional information each year as of 2021. Qualifying disability trusts (QDTs) are on the list of trusts for which exceptions have been proposed.

Read: CRA to increase filing requirements for trusts

The government’s proposed legislation hasn’t yet been released, says Truong. But, “If I were the government, I wouldn’t go after QDTs because what [the government] is trying to do is target trusts that haven’t been filing for some time and that have tremendous assets.”

QDTs don’t fit this description. For these trusts, “you need specific criteria to qualify,” says Truong. “One of the beneficiaries has to have the disability tax credit (DTC), and there are a lot of [other] conditions. I think they’ll be exempt because not everyone can take advantage of QDTs.” Further, these trusts are potentially underused in Canada, he adds.


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Katie Keir

Katie is special projects editor for Advisor.ca and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at katie@newcom.ca.