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Ottawa, ON
Canada

613 868 3950

The Canadian Financial Advisor

The RDSP after age 19

Benjamin Felix

RDSP accounts are eligible to receive funds from the Government of Canada to assist disabled persons in long-term saving. Both a contribution matching grant and an income tested bond can be paid to an RDSP, based on the beneficiary’s family income. If a beneficiary’s family income is over $87,123, they will be eligible for $1 of grant for every $1 of contributions to the account up to an annual maximum of $1,000; if the family income is below $87,123, the beneficiary will be eligible for $3 of grant for each $1 of contributions up to $500 per year, and $2 of grant for each $1 of contributions on the next $1,000 per year. The $1,000 bond is paid in full when the beneficiary’s family income is less than $25,356, paid partially (based on the formula in the Canada Disability Savings Act) if the family income is between $25,356 and $43,561, and the bond is not paid at all when the family income is over $43,561. Knowing these rules, the definition of family income becomes very important.

The income of the account holder of an RDSP does not affect the beneficiary’s eligibility for grant and bond payments. Up until the year that the beneficiary turns 18, their family income is the same family income that determines the Canada child tax benefit; this is the income of the minor child’s legal guardians. In the year that the beneficiary turns 19, their family income is based on their own income and their spouse’s income, but to earn the maximum grant and qualify for the bond based on their own income, the beneficiary must have filed at least two prior years of income tax returns. When this requirement is met, the RDSP benefits shift from being based on the guardians’ to the beneficiary’s income. For a beneficiary that is not able to work and has a very low income, the result of this shift in income testing can be a significant increase in grant and bond eligibility.

If two years of tax returns have not been filed in the year that the beneficiary turns 19, unused grant and bond entitlements can be carried forward for 10 years, starting after 2007. This means that if the beneficiary does not have two years of tax returns filed in the year that they turn 19 and do not receive their full grant and bond entitlement in that year, they will be able to claim the unused amounts in a future year. To maximize the amount of time that the full grant and bond entitlement can be invested and grow tax-free, it is best to have two prior years of tax returns filed in the year that the beneficiary turns 19. This is a small step that can yield large gains for the long-term growth of an RDSP account.