Help people with disabilities secure a better financial future
Most parents can look forward to a day when their children grow up, become self-sufficient, and thus worry a lot less about their futures. But for parents and family members of people with serious physical or mental disabilities, the worry never ends.
Chartered Accountant Ed Arbuckle, President of J. E. Arbuckle Financial Services Inc. in Waterloo, says that typically, the government’s financial aid to people with severe disabilities has been meagre, and largely the purview of the individual provinces. However, in 2008 the federal government introduced the Registered Disability Savings Plan (RDSP) to help families save for the ongoing support of their special-needs loved ones. It also introduced the Canada Disabilities Savings Grant (CDSG) and Bond (CDSB) programs to assist in saving for individuals with disabilities.
If you have a family member with ongoing, serious physical or mental challenges, you owe it to them – and yourself – to get all of the help you can. Here are some of Arbuckle’s top tips for making the best use of government programs to help secure their future.
Take the three-pronged approach – Canadians have three strategies to get financial help for family members with disabilities, Arbuckle explains. First is the provincial social assistance system which, in Ontario, provides a maximum of slightly more than $1,000 per month for a single individual. The second is a Henson trust which, with a lawyer’s help, can provide funds to people with special needs that won’t necessarily compromise other sources of funding or trigger “clawbacks” of government benefits. The third is the federal government programs: RDSPs, CDSGs and CDSBs.
Meet the requirements – To qualify for the federal government programs, beneficiaries must be eligible for the Disability Tax Credit, which requires a qualified practitioner to certify that the individual has a severe and prolonged physical or mental impairment that limits their activities of daily living. In order to establish an RDSP, each beneficiary must also have a Social Insurance Number, be a resident of Canada at the time they enter the plan and be less than 60 years of age at the time contributions are made to the plan.
Work the plans together – Canada Disability Savings Grants are amounts that the government contributes to help enhance the funds you put into an RDSP. Through the CDSG, the government matches the RDSP contributions you make by as much as 300 per cent, depending on the beneficiary’s family income and the amount contributed to the plan.
Get extra help for low-incomes families – CDSBs are the second direct source of government funds that target people with disabilities, specifically from low-income families. Even with no contributions to RDSPs, a Canada Disability Savings Bond can provide up to $1,000 per year, or $20,000 over a lifetime to qualified applicants.
Aim for the maximum – Each year, through the CDSG, the government may contribute up to $3,500 to an RDSP, to a lifetime maximum of $70,000. These amounts will only be paid until December 31 of the year in which the beneficiary reaches 49 years of age, so start early, even if contributions are small. Plan holders and their families who contribute just $1,500 a year over 20 years can potentially receive $70,000, says Arbuckle.
Complete the paperwork – Form T2201, the Disability Tax Credit Certificate, must be completed by a qualified practitioner and used to apply for the Disability Tax Credit, which itself can help offset taxes on earnings that the individual with the disability would otherwise have to pay. The application must then be approved by the Canada Revenue Agency. RDSPs are administered by banks and other financial institutions, which can usually supply the proper forms and information.
Growth is tax-free; withdrawals…not necessarily – Contributions to an RDSP are made in after-tax dollars, and they grow tax-free inside the plan until withdrawn by the beneficiary. There are no stipulations as to how the beneficiary may use the money, and funds must start to be withdrawn by December 31 of the year in which he or she turns 60. To the extent that withdrawals come from direct contributions to the RDSP, they don’t constitute taxable income for the beneficiary. But the CDSG, the CDSB and any investment income earned in the plan are taxable and must be included in the beneficiary’s income for tax purposes when they are paid out of the RDSP.
With these new programs – and some careful planning on the part of their caregivers – people with disabilities will have a better-than-ever chance for a more secure financial future.
Courtesy of: The Institute of Chartered Accountants of Ontario