Many people are living with a disability. However, this can present unique challenges and opportunities when it comes to financial planning. The most widely known are the Disability Tax Credit (DTC) and Registered Disability Savings Plan (RDSP). Whether it’s for you or your loved one, here’s what you should know about these options.
The Disability Tax Credit (DTC)
When creating a financial plan around a disability, it’s essential to determine DTC eligibility since it dictates what financial tools are available.
What is it?
The DTC is a non-refundable tax credit designed to assist individuals with disabilities and their supporting family members in managing their tax obligations. Unlike many other tax credits, you must apply and be approved before claiming the DTC.
Who Qualifies?
The government has established specific criteria to qualify for the DTC. An applicant must demonstrate that they are receiving life-sustaining therapy or have a marked restriction in one or more of the following areas:
- Dressing
- Eliminating (bowel or bladder functions)
- Feeding
- Hearing
- Mental functions
- Speaking
- Vision
- Walking
Additionally, the application must be signed by a doctor. If your doctor charges a fee for this service, keep your receipt, as it may be claimed on your taxes.
For full details, on the DTC: DTC - Canada.com
The Registered Disability Savings Account (RDSP)
The RDSP is an investment account specifically created to help those with disabilities save for their future. Once your DTC application has been approved, the government will notify you of your eligibility for an RDSP. The account can be opened under the DTC recipient's name or their support person’s name, depending on their ability. The DTC recipient is always the beneficiary.
The Benefits
RDSPs are desirable for their benefits. The first is the tax-sheltered growth of any investments held within the account. However, the biggest benefit is the grant and bond money they attract. For families with incomes below the 2025 threshold of $114,750, the government offers a generous 3:1 match on the first $500 contributed and a 2:1 match on the next $1,000. That’s $3,500 a year and up to $70,000 in a lifetime of grants. Furthermore, low-income households can qualify for a bond that doesn’t require any contributions to receive.
RDSP Withdrawals
RDSPs are intended for long-term savings, with the government encouraging contributions to grow for a minimum of 10 years before being accessed. To discourage early withdrawals, strict rules have been implemented regarding redemptions. If money is withdrawn before the 10-year growth period has passed, all or part of the government’s contributions that didn’t have 10 years to grow must be returned.
Moreover, minimum withdrawals must begin the year the beneficiary turns 60. Therefore, the final contribution to an RDSP should be made in the year the individual turns 49 to avoid the risk of grant clawback.
For more RDSPs details: RDSP - Canada.ca
In conclusion, disability planning centres around the DTC and can become complex, but support is available. For more disability strategies, contact KLT Wealth Management.
-Courtney Beach, QAFP
