New RDSP enables families of disabled people to save tax-free

TORONTO - Families of people disabilities will be able to set up tax-free savings plans under a long-awaited measure enacted by the federal government.
The registered disability savings plan - RDSP - "is about helping bring more independence to families of persons with disabilities, who are facing challenges, particularly financial challenges, when planning their future," federal Human Resources Minister Diane Finley said in presenting the program Tuesday.
The RDSP had been proposed in the Conservative government's March 2007 budget but became effective only this month.
"You know how government works - here we are the end of 2008," joked Finance Minister Jim Flaherty, joining Finley for the announcement in the lobby of a children's rehabilitation centre.
The government estimates 280,000 Canadians are eligible to open RDSPs, allowing parents and others to set aside funds for a child with a severe disability.
Ottawa will provide matching grants of up to $3,500 per year, plus a $1,000 bond each year for families with incomes under $37,885. Each RDSP has a lifetime contribution limit of $200,000 from the family and $70,000 from the government.
The program is expected to cost Ottawa about $200 million a year in contributions and forgone taxes.
Flaherty said the deadline for opening an RDSP and making contributions for 2008 has been extended to March 2.
RDSPs are intended for individuals who qualify for the disability tax credit, their families and others. Unlike a registered retirement savings plan, contributions are not deductible. But the money grows grow tax-free and will not be included in taxable income when withdrawn.
Income paid out of RDSPs also will not affect federal income-tested benefits, such as Old Age Security, the Canada child tax benefit and the goods and services tax credit.
The federal government has negotiated with the provinces and territories, and RDSP income and assets will be excluded from benefit clawbacks in Newfoundland and Labrador, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia and the Yukon.
Quebec, New Brunswick and Prince Edward Island are exempting RDSP payments from income support calculations up to set limits. In the Northwest Territories, a limited exemption will be allowed.
"We are leading the world in this initiative, and I expect it will be copied in many places around the world," Flaherty said, explaining that the program's lengthy lead time arose from the complexity of progressive social and tax policy, including getting other governments onside in not taxing or clawing back the program's income.
Bank of Montreal, the first major financial institution offering RDSPs, said it received about 600 inquiries on the opening day of the program.