How To Qualify for the Disability Tax Credit and RDSP, with Alan Whitton
Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.
Many Canadians don’t realize that the government has an investment plan designed specifically for Canadians with disabilities. The Registered Disability Savings Plan exists to help disabled Canadians with their long term savings, but it can be difficult to understand.
Alan Whitton is the founder of Canajun Finances, where he writes extensively about the Registered Disability Savings Plan, and RESPs as well. He joins me this week to explain the ins and outs of the RDSP, as well as the Disability Tax Credit.
Alan has close personal knowledge of the RDSP as a parent of a child living on the autism spectrum. He shares some of his experiences in using this plan, which can be somewhat complicated, and not easy to qualify for. For starters, as a prerequisite, a disabled person must qualify for the Disability Tax Credit in Canada, but the process to be qualified as a disabled person with CRA is not clear cut.
As Alan explains, you must be able to describe to the CRA how your disability adversely impacts your everyday life. Certain conditions, such as autism, vary in severity, making it difficult to explain how a person will have problems dealing with certain things over the course of their life. Someone may appear to be high functioning, however, the impact of the disability on their day to day life could be incredibly challenging.
In addition to RDSP rules and qualifications, Alan touches on investment options for RDSPs. While most banks offer an RDSP plan, not all give you the ability to invest freely. Alan does share how he invests the funds in his son’s RDSP.
Do you bank with a member of CDIC? If so, your eligible deposits with that institution will be protected up to $100,000 in each of their coverage categories, in the event of a bank failure. Didn’t know that banks could fail? CDIC has handled the failure of 43 of its member institutions since it was established in 1967. Guess how many people lost their protected deposits during those failures? Zero. Not a single dollar under CDIC protection was lost. Find out more about CDIC coverage and check to see if you bank with one of its member institutions by visiting CDIC.
- What exactly is a Registered Disability Savings Plan?
- The differences between an RRSP and RDSP
- How the Disability Tax Credit (DTC) works
- The Disability Tax Credit is a prerequisite for an RDSP account
- How to apply for the Disability Tax Credit
- The role of advocacy and DTC qualification
- Where to open an RDSP account
Many Canadians don’t realize the government has an investment plan designed specifically for Canadians with disabilities. The Registered Disability Savings Plan exists to help Canadians with their long-term savings but it can be difficult to understand. Alan Whitton is the founder of Canadian Finances where he writes extensively about the Registered Disability Savings Plan and RSPs as well. He joins me this week to explain the ins and outs of the RDSP as well as the Disability Tax Credit.
Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Do you bank with a member of CDIC? If so, you’re eligible deposits with the institution will be protected up to $100,000 in each of their coverage categories in the event of a bank failure. Did you know that banks could fail? CDIC has handled the failure of 43 of its member institutions since it was established in 1967. Guess how many people lost their protected deposits during those failures? Zero. Not a single dollar under the CDIC protection was lost. Find out more about CDIC coverage and check to see if your bank is one of its member institutions by visiting cdic.ca. Now, let’s chat with Alan…
Tom: Hi Alan, welcome to the Maple Money Show.
Alan: Hey, how’s it going, Tom?
Tom: Great. I’m glad to have you on because this is a topic I don’t know a lot about. I know you’ve been in the trenches on this one for years with the RDSP, so let’s just a hop right into it. Can you explain what RDSP is?
Alan: This is really a long-term savings program the government put together to help disabled people have money for later in their life. The EDC, employment and social development folks are the ones writing all the policy for this. It came out about 10 years ago. They’ve been fixing it, tweaking it. If you check their website you’ll see bulletins about the changes, updates and ideas. It is a long-term savings plan. It can be shortened but only for very extenuating circumstances. And if you try to take money out of this thing early, they are going to harpoon you. You’re going to lose a lot of money. The idea is it’s something for a disabled person to have when they turn 60. That’s when you can actually start taking money out without huge penalties being inflicted upon you.
Tom: So how is this different than an RSP then? Are there grants inside of that?
Alan: There are two different ways of getting money into it. It’s a registered disability savings plan. It’s a registered account like an RRSP, but it’s not like an RRSP where the money that goes in, goes behind the tax wall. When you try to take the money out, everything starts getting taxed. The money starts getting taxed only on grants, bonds and growth. That’s my understanding, although I haven’t reached that point yet. For those unaware, I learned most of this because my son is 15 and he’s on the autism spectrum. We wanted to make sure he was taken care of so we started investigating this early on. Until the child turns 18, the grants themselves are typically based on the parental income. In my case, my wife and I make enough money that the only money they’re going to match what we put in. The grants are matched against money you put in. If I put $1,000 in, they will match $1,000. But that is it for now. When my son turns 18 it will then be based on his income. The grants will get larger for the amount of money put in. I believe the maximum per grant is $3,500 per year and the maximum total grants for the whole program would be $70,000. But there are also bonds. That’s where the person opening it has low income. In that event, the government will actually kick money in even if you don’t put money in. That creates more interesting measures later when money’s being taken out because it’s then mostly government money. It’s not your money. To go back to your actual question, which was if this was like an RSP? No, it’s kind of a little bit like the RESP in that the money you put in was taxed already. So that money will never get taxed. And then the government will put grants on top of it. The grants are based on the actual income of the beneficiary after they turn 18.
Tom: Synonymous with this, I hear about the Disability Tax Credit. What’s that and how do these sort of work together?
Alan: There’s a lot of really complicated and interesting stuff here that people need to be very careful to make sure they get right. The Disability Tax Credit is granted by the CRA. It’s not something where you can just say, “My child is disabled.” The CRA actually has to recognize that your child is disabled and you have to prove it to them. Now, in some cases, disability is easily proven. With things like autism, it’s a lot harder. Typically, what you need to do is you prove that it’s a severe and prolonged disability that disrupts a person’s day-to-day life in a significant way. In our instance, what we ended up doing was getting a letter from a psychologist who filled in the correct forms because a T-2201 for the CRA. Then we put in some supporting documentation that showed this was my son and these are the problems he’s going to have in day-to-day life. Then the CRA granted a temporary DTC to it which lasted 10 years. About a year or two ago, we had to reapply for that. We had to do all the forms all over again. And we had to have updated letters and things like that. We submitted all of that and they granted us another temporary one until he’s 18. When he turns 18, he’s going to have to reapply for the DTC. And that’s one of the things that changed in the art RDSP. When the art RDSP first came out, the first thing you had to have was a social insurance number. You can’t do anything as country without a social insurance number. When the RDSP was first thought up, if you had lost the DTC—which in the case of autism and a few other disabilities, they can say, “No, you’re not disabled anymore,” or view it as something really screwing up your life anymore, they’re going to take it away. Then you’d have to collapse the RDSP with all the associated penalties within a year of losing the DTC. They’d give you a year to try to appeal the whole situation. In the last budget, they changed the rules around it giving you a bit longer. I don’t know if there’s an endpoint to it. You can’t take money out of it, but you don’t have to necessarily collapse it either. So the DTC is the second thing you need after the social insurance number. Without the DTC there is no other RDSP at all for the beneficiary.
Tom: My first thought there is I don’t know why they make you collapse it. If you go a decade and now you’re high-functioning enough to no longer get that credit—okay, maybe they don’t have to make anymore contributions, or give any more grants or bonds, but I’m surprised they don’t just let this run all the way until you’re 60.
Alan: Maybe that’s the way they’re actually headed.
Tom: I hope they’re heading that way.
Alan: My contact to the ESDC is certainly—they’re tweaking things and they’re learning things as they go along. The program is 10 years old so there are some people that are reaching the maximum age for the program. The age of 60 is when the program starts paying. You should start taking money out. Forty nine is when they actually stop giving you grants and bonds but you can still put money in, I think, until age 59 as long as it’s less than $200,000 total. Of course, with any kind of investing program, the sooner you get money in, the more growth is possible. But in my son’s case, it’s not really worthwhile putting too much money in upfront because there’s no grant money because we make too much money (as his parents). It’s a balance. We’ll see what happens when he turns 18. There’s a whole bunch of other stuff in Ontario about whether the Ontario Disability Income Grant comes into that as well. I had a very interesting discussion with Doug Hoy’s over at Hoy’s Michalos about whether an RDSP is included in a bankruptcy proceeding. The ESDC people I’ve talked to have said, no. Doug’s view is a little more pragmatic in that they didn’t think so; if a trustee puts it in and says, “I want that money,” the bank may give it up anyway because the bankruptcy laws are not written with any of the registered accounts mentioned in them—RESPs, RRSPs or anything like that. There has been an assumed policy around them, but the RDSP is even newer so we don’t know. I’m pretty confident that they’re not seizable as part of a bankruptcy proceeding other than the all the typical tricks where you tried to stuff a whole bunch of money in the last year before you declared bankruptcy. That money might be something you have to get back. But the collapsing was one of those interesting questions. And in our case it was worrisome because if they say, “Okay, you can’t justify his disability is that bad anymore,” then what the hell are we going to do with this money? Do I end up losing money on the deal because they’re going to put all these penalties on top of it because they closed it? I don’t think that’s the goal. The penalties they inflict if you try to take money out early are mostly to deter you from taking the money out early. They want you to keep this money in until the beneficiary is 60 so they can take care of themselves with a few exceptions that they’ve thrown in after realizing what happens if the person’s only got two or three years to live and they’re 30 years old? Not allowing them to take any money out would be kind of cruel. It’s not really ideal so they’ve actually created something called an SDSP, where you need to get a doctor to say this person only has five years or less to live and should be allowed to take money out of this. At times it’s a draconian program in that these are rules and these are the severe penalties for taking money out early, but it is a government program so they’re trying to make life better for you. That’s where they’re going with it.
Tom: I’d like that they have that option, though. At least you can you can get it when things go on.
Alan: That’s typical of government. Full disclosure, I work in the government so there is a lot of paperwork and justifications. You’ve got to get a doctor… They’ve actually expanded those rules. Before it used to be it had to be a doctor of psychology or a psychiatrist or a medical doctor that could only fill in the DTCs with justifications. They’ve actually opened it up to nurse practitioners. They can now do this work as well because there were a lot of doctors that either didn’t want to do it or didn’t want to put their neck on the line for these things, having to deal with the CRA. T just said, “No, I’m not going to do it.” Now they’ve said nurse practitioners can help out of these situations, which is good because it’s a lot of paperwork for someone to fill out. And the doctor is going to ask you for fees to get these forms, the T-2201s and the justification letters filled in. But again, adding nurse practitioners is a good step for getting the DTC, leading to the RDSP itself.
Tom: One thing you mentioned was the need (at age 18) to re-justify the Disability Tax Credit. I’ve seen the term out there, Child Disability Tax Credit. Is that a separate thing? Or is the 18 age thing?
Alan: We get more money from the Family Allowance side of things because my son is disabled. We actually still get money even though he’s 15. I think that’s where that is. Also, in that instance, I can use my son’s Disability Tax Credit numbers against my taxes. Whereas, later if he wants to transfer it to me we have to show that he’s living with me, we’re taking care of him, we’re guardianship. That’s another exciting part of my son turning 18 in Ontario. Now, for people watching this from across Canada, each province has interesting tweaks and nuances to the whole disability story. The RDSP, I believe, is pretty much similar. But in B.C. there’s a certain set of rules as well. Milburn Drysdale has a really good website. He explains how it works in B.C. Now, let’s get back to your question which was?
Tom: Oh, if a Child Disability Tax Credit is truly a separate thing or is it just a term thrown around?
Alan: I think it is. My son has a Disability Tax Credit that I use on my taxes currently. The Child Disability Tax Credit is—I don’t know if people are just using it as a nuance to explain that there is a child involved. But definitely, for the Family Allowance, there is a disability aspect to it as well. Because my son is disabled, we get more money as a family.
Tom: A lot of people love getting tax credits and grants and everything, but they need to realize this isn’t something that’s for everyone, obviously. How do you go about getting this disability tax credit that leads to RDSP? We hear things like autism as a spectrum where there is high functioning and there’s not. Where is the cutoff line here?
Alan: It comes down to your ability to fill in the forms correctly; to use the correct terms that describe (truthfully) in a way that the CRA wishes; descriptions that tell why there are problems in their day-to-day life because of the problems they’re having. I know people apply for kids with ADHD. It is something that is definitely on a spectrum. In a lot of instances, it’s easier to describe how the child is going to have problems the rest of their lives dealing with things. In my son’s case, they view that as a higher-functioning child. But again, we have a psychologists report that describes the amount of work that he has to do to look as normal as he does (for lack of a better term). He functions high, but the impact on his day-to-day life is high. And that’s the hard part for people to understand. It comes down to having an ability to describe it (the disability) and put it in the correct terms and getting your doctor to use those terms correctly or sign a document that says that. Now, there are a lot of firms out there that I really dislike that take either a percentage or charge a ridiculous sum of money to help people to do these DTCs. They are also very litigious so I will not mention any names. But they’ve certainly been cracked down upon by the CRA. There are some people that try to help out. I’m aware of a few counselors that are trying to help out—community groups. But anywhere that says they get to take 10 or 20 percent of the tax money you get back from the first year is bad. If they say 10 percent of everything you get for the rest of your life in terms of tax breaks—that is scum. It’s my opinion of scum. Maybe somebody else doesn’t view this as scum, but I view those as scum. You can do this as long as you describe the disability clearly and its impact on the person’s life. We’ve been hearing that people with diabetes has been getting turned down. People with insulin pumps have been turned down because the argument is that it isn’t affecting their day-to-day life. The pump takes care of you and you do what you want. You live your happy little life. I don’t agree with this. I’m just reporting what I’ve read. But a lot of those are being appealed and argued at the CRA level. And the CRA says they haven’t made any new rules or changes on how the DTC is done but there does seem to be some changes that have happened. Now, whether it’s by design or someone just reinterpreting rules, I don’t know. But it’s disturbing and worrying for people with disabled kids. That’s for sure. And the disabled family members and loved ones, too. That’s the other thing to remember is that if someone becomes disabled, in their 20s or 30s and they get a DTC, an RDSP is still another option. You can open an RDSP up until age 49. I believe that’s the cut off. But evidently 55 is the maximum age you can have. It’s not going to do that much good. This isn’t just for newborns. This isn’t just for 5-year-olds or something like that. If you become disabled—I’ve met a few people or been in correspondence with a few people who set up RDSPs for themselves. They’re in their 20s and 30s and have had strokes. Things have happened to them where they become disabled. And this program, again, is to help them with savings when they reach an older age to make their life simpler.
Tom: It seems like a lot of this, just like a lot of things with disabilities, kind of comes down to advocacy. We’ve seen at schools where they say they can only test two students for this each year and then things like that. If you’re not squeaky wheel, you won’t make any progress.
Alan: Well, we’ve been very lucky in that we’ve made enough money to be able to have testing done. In a lot of instances, if we had to wait, we wouldn’t have necessarily got the testing done that we wanted to get done. We’ve been able to advocate for our son because we were able to get reports done that needed to get done. It’s definitely much harder for a lot of people to get a DTC for their kids, especially with kids on the spectrum. We’ve been in a few discussion groups with other parents of kids with autism. And it’s no mean feat to get a DTC in this situation. Kids with more severe disabilities have to work hard to get them. For autism, you have to do a lot of work.
Tom: And you said you were able to pay for this testing. Obviously, the people that could benefit from this most are going to be the ones that cannot pay for the testing as well and that becomes quite a problem, it seems.
Alan: Right. If you’re in a bigger city you may be able to deal with it. If there’s a children’s hospital there, you may be able to get testing done through them or they may have a program running through them where you can get the testing done. In our case, the work was done through CLHIA itself and programs that were running out of there. So, we were lucky that it was identified by a speech pathologist. We had suspicions that something funny was going on. The speech pathologist said, “Maybe you should read this book…” My wife read that book and then, of course, did what a good mother does, which is look up everything she could to figure out what was going on. I lay claim to all of this expertise about RDSPs and DTCs as all stuff I’ve learned from my wife. She’s done all of this work. I just try to report it as closely as possible. But understanding and figuring out that your child actually is on the spectrum is no mean feat. It could be something else. It could be a learning disability. My wife’s mother was working in the Halton Learning Disability Group where there was some understanding there as well but getting the right tests done and the right label put on the child—and I mean labeled in a more positive aspect than what label means to a lot of other people, to get them the services they need.
Tom: Yes, you want to make sure you get them that right classification so you can actually make progress.
Alan: To get the services you need, you need the label, unfortunately. Let’s say diagnosis would be a more genteel way to put it. With ADHD, I haven’t met anyone who’s got a DTC on ADHD personally, but I am aware that some people have. And more power to them if they have been able to get the right tests done and get the right documentation done. But the RDSP itself is straightforward in the sense of how it’s run. There are reams of paper on important aspects of taking money out and what happens if someone becomes more disabled and things like that. But, the DTC itself is really the crux of the whole mess and getting that is daunting for a lot of people.
Tom: So once you cross this DTC hurdle, how do you open an RDSP? Do you just go to a bank? I believe some services don’t offer this where they might normally have the usual RRSPs and TFSAs. Not everyone has this, right?
Alan: From what I saw this afternoon doing a cursory glance, most of the major banks do offer RDSP programs. It’s like the RESPs they would offer where you’d only be able to buy their mutual funds. Or in some instances it’s just a savings account the grants would go into. Luckily, we came across the TD Waterhouse—Direct Line or whatever they’re calling themselves these days which actually has a full trading program. My son’s our RDSP is actually a trading account that’s associated with where my RRSPs and things are. So we can buy ETFs. We can buy whatever index funds we like. We can buy stocks, GICs, or we can just put cash in there. Right now it’s not that hard because, typically, the statement we get every year of how much money they’ll match is usually only $1,000. I put $1,000 in on January 30th and the government will put its grant in of $1,000 a month later. And in my case, I’m just doing a straight “couch potato” type investing thing where I just use index funds, rebalance and go away which is good given the times we’re in right now and everything losing its value all over the place. I’m curious to see how I rebalance this. It’ll be an interesting thing. I won’t sell anything. It’ll just sort of what do I buy the most of? I don’t know what that will be. So we use TD. I’ve written copious amounts about the issues I’ve had with getting the money in there. TD has set up some odd firewalls, fiefdoms, depending on how you want to look at it where I can’t transfer money directly into the art RDSP. I have to put it in my trading account and then once a year I phone someone. I can’t do this online. I have them do the transfer and then I can actually rebalance everything. But I have talked with someone who has his own RDSP. This is a disabled person who’s opened their own RDSP with TD Waterhouse (Direct Line or whatever they’re called). And they’re able to do things directly. They can transfer money into it directly. It may be because I’m not the owner and my son is a beneficiary of things. So that may be part of the game or part of the issue. I’m not sure exactly.
Tom: Yeah, that does cause a lot of extra hassle. It seems pretty common. Is there any other thing around RDSPs that we haven’t touched on?
Alan: My wife pointed out that if you don’t put money in, you get bonds. When I said SDSP, that’s the Specified Disability Savings Plan, that’s what happens if the beneficiary has a short lifespan. You get a note from the doctor saying you most likely won’t be on this earth in five years. There is something called a PGAP which is a type of RSDP where it’s a primarily government assisted plan. The money in there is mostly grants and bonds. You haven’t put that much money in yourself. There are a plethora of exciting new rules that go along with trying to take money out of that one early. AHA is the Assistance Holdback Amount. This only comes into play if you try to take money out early, before 60 years old. If you try to take money out early, typically the penalty will be for every dollar you take out, you’ll pay a $3 penalty up to a maximum of the total of grants and bonds that you’ve paid in the last 10 years. They really don’t want you taking money out of this thing. And they are going to stop you by making these penalties just really over the top. Milburn Drysdale is at asdfunding.com. If you’re in B.C., and you need to know about autism, DTCs and stuff like that, that is the site to look at. Of course, you should always be looking at my site, canajunfinances.com where I have an RDSP, an RESP and a whole bunch of other stuff. I’m not portraying myself as an expert in terms of finances. I am a grizzled veteran of the wars. I’ve had three daughters graduate through university, so I know a lot about our RESPs, putting money in, taking money out, attempting to take money out. So the RDSP stuff has been near and dear to my heart. There is actually a methodology to take money out of the RDSP early, but it’s something you have to have planned 10 years in advance because of this whole 10 year maximum of grants. Get as much help as you can from all of your support groups, your doctor… It could be a nurse practitioner. If you’ve got an occupational therapist or other people that are going to help out, get that done. Get the CRA to help. You can call the CRA and they will try to help you out as best they can. There’s supposedly a nurse practitioner on there that is supposed to answer questions about this stuff too. Get the DTC and then set up the RDSP. Now, where you set it up, I’m not as worried about. I’ve set it up with the TD Direct Line. Just get it where you can be flexible and you don’t have to just keep buying bank mutual funds. Or worse still, it’s just a savings account that you put money in that grant money goes into and it grows at point .13 a year or whatever the hell it is. I know the Questrade was talking about having an RDSP. I don’t think they did anything about it because I haven’t seen anything on Questrade about that. I know banks mostly offer it. There are a couple of credit unions that offer it. There are one or two private investment things because they send me emails saying, “Hey, you don’t ever mention us, but you guys say you need a $100,000 upfront to do it.” Not a lot of people who are setting up RDSPs have that kind of money lying around. I mean, you may Tom, being a successful entrepreneur is as you are. But poor schmucks like me that work in government ain’t got money like that laying around.
Tom: Well, this has been great. Can you let people know where they can find you online?
Alan: I am on canajunfinances.com. It’s https so it’s secure. I’m also the Big Cajun Man on Twitter in pretty much any other social media. If you’re looking around and see the Big Cajun Man it’s me. And there is a terrible explanation of that moniker on my website.
Tom: Thanks for being on the show.
Alan: Thank you.
Thank you, Alan, for helping to demystify the Registered Disability Savings Plan and explaining its close connection with the Disability Tax Credit. You can find the show notes for this episode at maplemoney.com/alanwhitton. It’s hard to believe the show’s closing in on 100 episodes. If you’ve joined us more recently, I suggest you head back into the archives on your podcast player or at maplemoney.com/show and check out some of the past episodes. Some of my favorites from early on include chats with Pat Flynn, Barry Choi, Philip Taylor and J.D. Roth. Thanks for listening. I look forward to seeing back here next week as Dan Kent joins me to discuss where we’re at with the stock market.