The RDSP is a disability support program that is not intended to help those who really need it.

The RDSP needs serious revision before it will be more than a boutique benefit program for a few lucky Canadians.

Finance Minister Jim Flaherty teared up during an October 2011 press conference announcing a review of the RDSP.

“There was an initial attempt to contain the tears. When that failed, there was a brief foray at concealing them from the cameras.”

“Finally, there was no hiding them or holding them back. The finance minister, who is thought to be one of the tough guys in Stephen Harper’s cabinet, wept unabashedly during what might have seemed a routine announcement.” The Record

I appreciate that Mr. Flaherty is emotional about disability supports since he has a child with a severe disability.

However, tears are not enough for the more than 2 million adult Canadians with a severe or very severe disability. Only 50,000 of them might benefit from the RDSP. (See end note)

For the past two months the media having been hyping the program as if they are public relations agents for the government. See Globe and Mail Don’t overlook the value of this disability program.

Let’s look at what the RDSP is and where it doesn’t work.

What is the RDSP

(photo Stephen Pate)

The RDSP is a government supported savings plan for people aged 18 to 59 with severe disabilities. The government is using the Disability Tax Credit eligibility to determine who qualifies.

Essentially, the program was created so parents of dependent children and adults could save for the days when the parents are infirm or deceased. This will become a social problem for Canada as children with severe disabilities age and Canada no longer confines them to institutions.

The program is full of complex income tax rules about eligibility, withdrawals and taxability that will confuse most people with a learning or developmental disability. Unlike the RRSP which is quite simple. the RDSP reflects the new complex tax benefits that will create work for accountants but baffle most Canadians.

I am a person with a disability, a former practicing tax accountant and someone most people consider a whiz at taxation. I find the RDSP far too complex.  Was this program meant to help or merely given the appearance of a benefit? It certainly is not on the road to tax simplification which should be a Conservative goal considering smaller government.

A doctor or other medical practitioner must certify that the person qualifies for the DTC which in itself is only worth about $1.200. However, it is a trigger for other government programs of much greater benefit.

The beneficiary has to qualify for the DTC but contributions may be made by anyone on their behalf. No contributions can be made after the beneficiaries 60th birthday. Contributions are not tax deductible but income inside the RDSP is not taxed until withdrawn.

The government may contribute two amounts annually to the RDSP: 1) Canada disability savings grant of up to $3,500 based on your contribution of $1,500 and 2) Canada disability savings bond of $1,000 based on income tests. The annual maximum is 4,500.

To get the maximum grants the beneficiary must have an income less than $23,855 which would be reasonable for someone with a severe to very severe disability. See the rules on the government website.

The grant is limited to $70,000 lifetime and the savings bond to $20,000 lifetime.

If most the of money in the RDSP was contributed by the government, it is taxable in the hands of the beneficiary when paid out. Generally, the RDSP expects the plan which maxes out at $200,000 lifetime to pay out an annual annuity to the disabled beneficiary.

Why the RDSP is not a solution yet

The RDSP will not keep a single adult with severe disabilities from living in poverty when their supporting relatives are gone.

The government has crafted clever exclusions and rules to the RDSP to make it seem wonderful but inadequate to the task.

Only people in the upper middle class with a disability are likely to have cash they can free up for the $1,500 a year contribution.

A child or adult dependent with a disability can be extremely hard on the personal finances of any family. Along with the requisite adaptive devices like wheelchairs etc there are home and vehicle adaptations that cost tens of thousands of dollars.

The $4,500 matching grants are further limited to low income families who are again less likely to be able afford the RDSP.

Baby boomers with disabilities are excluded from the program with the age 59 cut off for plans and age 49 cut-off for government contribution. The largest group of Canadians with disabilities can’t get any help from the RDSP.

The lifetime limit is not adequate to provide independent living for the beneficiary when his/her parents are gone.

Taxability of the earnings and government contribution on withdrawal will reduce Provincial disability supports and the Federal Guaranteed Income Supplement.

The Government has a public relations benefit from it’s seeming generosity and the banks will earn handsome fees and returns on investment.

Endnote

The Statistics Canada 2006 survey of Canadians with disabilities, named PALS 2006, disclosed that almost 2 million Canadians suffer from a severe or worse disability. Ironically, the current government has cancelled PALS which was the only comprehensive and reliable survey of Canada’s disability population.

“Problems related to mobility, such as walking, climbing stairs, or carrying an object a short distance, are often associated with agility problems or with pain. Approximately 70% of Canadians who reported one of these three disabilities were also affected by the other two.”

Examples of severe and very severe disabilities

“A person who can only move around in a wheelchair would have their mobility more severely limited, and one who is bedridden for a long term period would have a very severe mobility-related disability. The levels of severity for individual disabilities are combined to provide a measure of the overall level of severity.”

For a detailed analysis of severe and very severe disabilities, see the PALS 2006 report.