Thinking of opening a Registered Disability Savings Plan? If you are, you might be asking how much the government would contribute to it. A fair question without a straightforward answer.
There are two types of RDSP contributions the government provides:
- The RDSP Grant – formally known as the Canadian Disability Savings Grant.
- The RDSP Bond – the Canadian Disability Savings Bond.
But let’s just focus on the Grant. We will cover the Bond in a future post.
What is the Grant?
Simply put, the RDSP Grant is a matching contribution from the government. Contribute to your RDSP account and the government will make a matching contribution if you are eligible for one. You put in, then they put in.
But how much is the Grant? And how much must you contribute to receive that amount? You shouldn’t expect the amounts will be the same every year. They often aren’t.
Grant Entitlements – How Are They Calculated?
Grant entitlements are calculated for each calendar year. The amount depends on “Family Income.” Those with larger family income are entitled to a smaller Grant than those whose family income is smaller. Each year, the government sets an income threshold to determine the entitlement amount.
- When Family Income is above the Grant threshold: the Grant entitlement is $1,000. For every dollar you contribute to the RDSP account, the government will contribute one dollar, up to $1,000.
- When Family Income is at or below the Grant threshold: the Grant entitlement is $3,500. For every dollar of the first $500 you contribute, the government will contribute three dollars. For every dollar of the next $1,000 you contribute, the government will contribute two dollars.
The Grant income threshold for 2021 is $98,040. If family income is $98,040 or less, the Grant entitlement is $3,500. If family income exceeds $98,040, the Grant entitlement is $1,000.
But What is Family Income?
Determining family income for RDSP purposes depends on the beneficiary’s age, marital status and possibly their parents’ marital status.
Starting the year the beneficiary turns 19, family income is based on the beneficiary’s net taxable income (line 236 on your tax return), plus their spouse’s income if they are married or in a common-law relationship.
Until the year the beneficiary turns 19, family income is based on the parents’ combined net taxable income. If the parents are separated or divorced, it is based on the parent’s income who receives the Canada Child Benefit.
The other tricky bit about calculating the Grant entitlement for a particular year is that it is based on the family income from the 2nd year previous. For example, the 2021 Grant entitlement calculation is based on family income from 2019.
Here are the Grant thresholds for each year:
Unused Grant Entitlements
There is a difference between calculating the Grant entitlement for a calendar year and calculating the maximum Grant amount you could receive in the current year.
With each new year, your Grant entitlement is calculated. Your 2021 Grant entitlement might be $3,500, but what if you haven’t received Grant entitlements from previous years? Those Grants are not lost and gone forever, necessarily. You can still access unclaimed Grant entitlements from the previous 10 years. If you open an account in 2021, you can access Grant entitlements from as far back as 2011 (assuming you were eligible for the Disability Tax Credit at that time).
While Grant entitlements could be as much as $38,500 combined when you open an account, you cannot receive all of the entitlements in one year, even if you were prepared to make a large contribution yourself. The government limits the amount of Grant they will pay out each year to$10,500. It can take several years to collect all entitlements from previous years. Those unaware of this limit are liable to contribute more than what is required to maximize the Grant contribution in a calendar year.
The amount of Grant you could actually receive at any given point in time depends on several factors, including (but not limited to):
- Which years the beneficiary was approved for the Disability Tax Credit (DTC)
- Family income
- The beneficiary’s age
- Grant contributions previously received
Let’s look at a few scenarios.
- RDSP account opened in 2021
- Beneficiary born in 2007 (turning 14 years of age in 2021)
- Approved for Disability Tax Credit from 2007 onward
- Parents’ annual net taxable income has been greater than $100,000 from 2009 onward.
Because the account was opened in 2021, the earliest entitlement year would be 2011. Since the parents’ combined net taxable annual income has been more than $100,000, putting Family Income above the Grant Threshold in each year, the Grant entitlement for each year is $1,000 for a total of $11,000. For every dollar the family contributes, the government will provide one dollar in Grant contributions. Even though there is $11,000 in total Grant contributions, the maximum Grant amount they could receive for 2021 is $10,500. The family would need to contribute $10,500 of their own money to the RDSP to receive the maximum Grant amount for the year.
- RDSP account opened in 2021
- Beneficiary born in 1990 (turning 31 years of age in 2021)
- Approved for Disability Tax Credit from 2002 onward
- Beneficiary’s annual net taxable income has been less than $20,000 from 2009 onward.
Similar to the first scenario, the earliest entitlement year would be 2011. Since the beneficiary turned 21 in 2011, the Grant entitlement calculation is based on his income. Since his income has been less than $20,000, putting below the Grant Threshold in each year, the Grant entitlement for each year is $3,500 for a total of $38,500 in Grant entitlements.
The maximum Grant amount he could receive in 2021 is $10,500 as in scenario one, but calculating the required contribution amount is not so straight-forward. You might think, if you need to contribute $1,500 to receive the $3,500 annual Grant entitlement, wouldn’t you simply contribute $4,500 (i.e. the equivalent of three contribution years) to receive a $10,500 Grant? Simply put, the answer is no.
Essentially, the government gives you the biggest bang for your buck. Let’s say you qualified for the maximum Grant entitlement for the current year plus the previous 10 years. The Grant entitlements from each calendar year that provide $3.00 for every $1.00 are exhausted first. Only when you have exhausted all the available 3:1 Grant entitlements, will your contributions tap into the 2:1 Grant entitlements where each dollar you contribute is matched by a $2.00 Grant.
The personal contribution would need to be $3,500 to receive the $10,500 Grant in 2021. The personal contribution capitalizes on the 3:1 Grant entitlements from 2011 through 2017.
The personal contribution needs to be increased in 2022 to secure the same Grant amount of $10,500. The personal contribution exhausts the remaining 3:1 matching Grant entitlements and the balance of the Grant contribution must come from the 2:1 matching Grant entitlements.
Other more complex scenarios exist. Admittedly, we have not given you an exhaustive explanation. Calculating Grant entitlements is complicated. There are too many caveats, exceptions, considerations, etc. for a blog post. Our aim was to provide a basic sense of the mechanics and the value Grant contributions provide.
And yet it is important you understand the Grant entitlements and the what you need to contribute for your own RDSP account. To assist, we have been developing an RDSP calculator that will calculate Grant and Bond entitlements based on the information you enter. We have designed it to make it simple and easy to use. We plan to launch the calculator on our website within the next couple of months.
If you want to be notified once the RDSP calculator is released, please sign up for our newsletter.