Canada Disability Savings Bonds
The Registered Disability Savings Plan (RDSP) is a wonderful savings vehicle for people with prolonged disability. It may attract two key benefits from the government. One is the Canada Disability Savings Grants, a very helpful matching grant to enhance the savings for the person with special needs. However, I’m often being asked the question: “If a low-income family could not afford to make any contribution now, how could they get benefited from having a RDSP account?” This is when the Canada Disability Savings Bonds (CDSB) comes into play.
The CDSB is designed to provide extra funding for low-income families with disability. Unlike the matching grants, the CDSB does not require the family with disability to make any contribution. The government will solely look at the net family income, and decide how much disability savings bond will be deposited into the disabled person’s RDSP account. The maximum lifetime CDSB one may receive from the government is $20,000.
According to the Canada Revenue Agency’s Website:
“The amount of the bond is based on the beneficiary’s family income. The beneficiary family income thresholds are indexed each year to inflation. The income thresholds for 2013 are as follows:
- $25,356 or less (or if the holder is a public institution), the bond is $1,000;
- between $25,356 and $43,561, part of the $1,000 is based on the formula in the Canada Disability Savings Act;
- more than $43,561, no bond is paid.”
* Note that for minor beneficiary, the family net income is that of his or her parents, while beneficiary over the age of majority, the family net income is that of the beneficiary and his or her spouse, if applicable.
Another very appealing rule is that unclaimed CDSBs may be carried forwarded. One may claim back the amount up to 2008 or the year the beneficiary is eligible for the disability tax credit, whichever comes the later. The maximum carried forward period can last for 10 years.
Let me show you a real life example:
Awhile ago, I met a single mother where the child is diagnosed with autism. In our conservation, she revealed that she was unemployed for a long time, and did not have much savings to make any contribution into the RDSP account. Knowing that the child was already approved with the disability tax credit before 2008, I advised her to setup the RDSP account.
Given that her net family income has always been below the first threshold of $25,356, the child is entitled to $1000 of bonds since 2008. (Note that the income thresholds are indexed each year to inflation). After we setup the RDSP, the government has deposited $6000 into the account. (This is the 6 years of disability savings bonds from 2008 to 2013)
The $6000 is now growing within the investment portfolio that is suitable for this family. The best thing is this family did not even contribute a single dollar into the RDSP to make this happen.
This article is for general information only and is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please consult an appropriate professional regarding your particular circumstances. This article does not constitute an offer or solicitation in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful to make such offer or solicitation. References in this article to third party goods or services should not be regarded as an endorsement of these goods or services. This article is intended for Ontario, Canadian residents only and the information contained herein is subject to change without notice. The owner of this article is not liable for any inaccuracies in the information provided. Image Courtesy khunaspix/ FreeDigitalPhotos.net
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Investment Fund Advisor | Investia Financial Services Inc.
Sales Manager & Financial Consultant | Excel Insurance Agency Inc.
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