Calculating Annual RDSP government contributions is a bit of a mystery to some. Here is how they are calculated.
There are two types of RDSP government contributions: the Grant and the Bond. Let’s start with the Grant.
The Grant
The Grant calculation is based on annual net family income and the amount of money that is privately contributed. Here is how it is calculated when the annual net family income is $93,208* or less.
READ: What is Net Income?
The first $500
The first $500 of private contributions made to the RDSP in a calendar year attracts $3.00 for every $1.00 contributed. If the private contribution is $100, the government will contribute a $300 Grant. If the annual private contribution is $500, the government RDSP Grant will be $1,500.
The next $1,000
The next $1,000 of private contributions made to the RDSP in a calendar year, attracts $2.00 for every $1.00 contributed. If an additional $100 is contributed by the family, the government RDSP Grant will equal $200. If the full $1,000 is contributed, the government RDSP Grant will equal $2,000.
Adding it all together, if the annual private contribution is $1,500, the government RDSP Grant will equal $3,500. If you contribute more than $1,500, you WILL NOT receive additional Grant contributions from the government UNLESS there is any retroactive Grant money available from previous years. To understand how RDSP Grant retroactivity is calculated, read How to Maximize Your RDSP.
If the annual net family income is greater than $93,208* the government grant matches dollar for dollar up to a maximum of $1,000. In other words, if the annual private contribution equals $1,000, the RDSP Grant will be $1,000. Any private contributions above and beyond $1,000 will not attract additional Grant contributions unless there is any retroactive Grant money available from previous years.
The Bond
The Bond does not require a private contribution. It is solely based on family income.
When family income is $ 30,450* or less
The RDSP Bond contribution is $1,000.
When family income is between $ 30,450* and $46,605*
A prorated amount of the RDSP Bond is provided.
When the annual net family income is greater than $46,605*
An RDSP Bond contribution is not provided.
When an adult child is living with their parents
If the beneficiary of the RDSP is an adult living with her parents, how much her parents earn does not matter. Starting the year the beneficiary turns 19, the Grant and Bond calculations are based on the beneficiary’s income, even if she lives with her parents. While her parents may make the private contributions to the RDSP, the Grant and Bond contributions are based on the beneficiary’s net income (or her income combined with her spouse’s, if they are married or common law). If the beneficiary’s net income is below $30,450*, she is eligible for the maximum Grant and Bond contributions.
*All income thresholds are 2016 net income figures which are used to determine 2018 RDSP government contributions. Grant and Bond calculations for any given year, use net family income figures from the 2nd year previous to the year in question. To determine 2018 Grant and Bond amounts, net family income from 2016 is used. Income thresholds increase each year in accordance with inflation. Net income is found on line 236 of a tax return or notice of assessment.
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You can contact Ron Malis at rmalis@monarchwealth.ca