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October 18, 2011

A Canadian Disability Endowment

This should not be taken as authoritative tax advice.  Please consult a professional.

Fitzgerald: The rich are different than you and me.
Hemingway: Yes, they have more money.

Being disabled in Canada really sucks.  Accessibility is a very distant dream. Governments have excuses but no standards. The medical profession wants to cure you but not improve the quality of your life.  Charter rights are a vague promise.  By educational attainment, employment and income measures disabled folk lag  well behind.

But there is exciting news.  Canadians who meet the guidelines for a disability tax credit (itself a very generous program) are also eligible to have a Registered Disability Savings Plan, which can be funded through contributions, matching grants and outright government gifts.

The terms are extremely generous.  By saving as little as $500 each year (there is no real minimum), matching grants and gifts will total an additional $2500 or more.  With the power of compound interest, a modest 5% annual return produces $100,000 in 20 years.

To get full forgiveness of the government contributions, you need to wait 10 years after their last contribution before withdrawing.

Timed like a retirement plan, the money could be withdrawn starting at age 60 and ending at 83.  With modest 5% growth, total payments will exceed $311,000.  Not bad for a $15,000 investment!.  The rules are complex and include an option for accelerated end-of-life payout.  The grants and bonds generate taxable distributions, but distributions are excluded from calculating many means-tested government benefits.  Read the information sheet from Canada Revenue to understand the details for your situation.

RDSP distributions do not count as income for the purposes of the Guaranteed Income Supplement.  The GIS is itself not taxable.  

So a person with zero income at age 65 gets an Old Age Security payment of $15,208.92 nontaxable OAS+GIS.  Our hypothetical saver would then get $7,000 to $21,000 from their RDSP, depending on the year, making for a maximum tax liability in Nova Scotia of just $2700 on a total income of as much as $36000.  This is easily covered by the $7239 disability tax credit, making zero tax.  In Nova Scotia, $30,000 tax-free is roughly the same as $37,000 taxable income.

What's this about?  Wealth.  The median Canadian family unit has about $69,000 in financial assets.  The RDSP potentially puts disabled folks on an equal footing with their fellow citizens.   Call me an optimist, but if word gets out, merchants will be installing ramps to attract your business, banks will see you as a preferred customer, restaurants will have Braille menus, extended care facilities will pay attention to their clients.

Most importantly, disabled folks will be assets, not liabilities.

We call on advocacy groups, educational institutions at all levels and financial institutions to encourage full use of RDSPs from the earliest opportunity.  Hemingway had it right.

Gus Reed

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