Daily Home Renovation Tips

Editor’s Note: Today, 23-DEC-08 I called BMO Investments who had a message on their ‘all lines are busy .. please stand by…’ voice mail system saying that the deadline for RDSP contributions for 2008 has been extended until 02-MAR-09. I don’t know if this is a one time extension or not. It was also reported here today:

http://business.theglobeandmail.com/servlet/story/RTGAM.20081223.wflahertystaff1223/BNStory/Business/home

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Today, December 20, 2008 marks a signficant departure for us.

First, we are writing not one but two articles on the same day.

Second, we are writing about a topic that has absolutely nothing to do with our web site’s focus of home energy conservation, renovation and maintenance.

We are writing about the new Registered Disability Savings Plan (RDSP) enacted by the Canadian Federal Government.

Why?

First, as many of you know we have a special needs daughter; therefore, this program is of  specific interest to us.

Second, there is an extremely tight window of time for those who are eligible to receive the applicable government grants and bonds relative to 2008. How tight? To the best of my understanding (and if I am wrong would you please lease a comment to this article so I can research and adjust) in order to receive the applicable grants and bonds for 2008 the contribution to the new RDSP must be made by close of business 31-DEC-08.

This does not mean that the opportunity to participate in this new account meant to provide financial assistance over the long term for people with severe, long-term disabilities is gone forever. Nothing could be further from the truth.

All I am trying to point out is that if you wait until 2009 to establish a Registered Disability Savings Plan you will not be able to make retroactive contributions  back into 2008; therefore, if you do not establish an RDSP and make contributions in the next week and a half (as of the writing of this article), you will loose the financial grants and bond relative to 2008 forever (unless some last minute change occurs with the administration of this program).

How much are we talking about? According to Emad Rizk, Investment Specialist with BMO Investment Center, this could be $3,500 in grant money plus a $1,000 Disability Bond depending on income levels (more about that below). I don’t know about you, but to me and other parents I know with special needs children and relatives, that is not ‘chump change’.

Now, Emad was incredibly patient with me and took his time explaining all of the in’s and out’s, both of the RDSP itself and what we (my wife and myself) need to do.

First, Emad emailed to us two forms to print and fill out:

• Application for the Canadian Disability Savings Grant and/or Canada Disability Savings Bond for Beneficiaries Aged 18 and Over
  • This form is from Human Resources and Social Development Canada
• New/Existing Account Application - BMO Disability Savings Plan (DSP)
  • This one is specific to BMO Investments Inc.

 We fill out and sign both forms and all we need to do with them is to fax them back to Emad together with additional information (e.g. photo ID’s, etc.).

Second, in our situation the account will be in our name with our special needs daughter as the beneficiary. We are not current customers of the Bank of Montreal, so each of us (my wife and myself since we will be joint owners of the plan with our special needs daughter as the beneficiary) first need to establish a customer profile with our nearest Bank of Montreal branch. We will do that on Monday of next week.

Third, once the account is established we simply need to made a deposit before the end of business December 31, 2008 and we are done. Whew! Then we have 12 months to make our desired contribution for 2009, which we will likely do by some form of monthly contribution.

Now, there are lots of information available outlining eligibility and benefits. According to the article by Beth Marlin in today’s Toronto Star (in the business section of all places) entitled Slow Start For Disabled Accounts, confirmed by Emad over the phone this morning, any person who receives the Federal Disability Tax Credit (DTC) on their annual income tax return is eligible and is a Canadian resident. 

Both the article and Emad also confirmed, at least for Ontario, that assets in the Registered Disability Savings Plan as well as withdrawls would not affect the individual’s provincial disability benefits or disability support. This was also a major concern for us. All prior announcements from the Ontario government indicated that assets in RDSP’s would be taken into account in determining Ontario funded disability benefits & support.

Here is the link to the Ontario Ministry of Community and Social Services’ November 30, 2008 news release confirming this. What might also be lost in this release is that “…Ontario is also increasing the amount they (social assistance recipients) can receive as a gift or payment from a trust from $5,000 to $6,000 a year.”

This same release also mentions that:

• “British Columbia, Saskatchewan and Newfoundland have also announced that they will fully exempt both RDSP assets and withdrawals.”

There is an income test which is confusing until Emad clarified it for me.

Depending on the annual income of the special needs person, the first $500 contributed annually by them or family members, etc. will see the Federal Government contribute $1,500. However, here is where Emad and Beth disagree.

The article linked above states that “For each dollar of the first $500 in contributions, the government matches with $3, then $2 for the next $2,000.” However, Emad indicates that after the first $500 contribution into the RDSP plan, for the next $1,000 contributed into the plan (not $2,000), the Federal Government will contribute $2,000. So, per Emad, for a contribution of $1,500 annually, there will be $3,500 in government matching Canada Disability Savings Grants into the RDSP account.

As well, there is also a $1,000 Canada Disability Savings Bond that can be contributed by the Federal Government regardless of any amount of money placed into the plan. I’m still not too clear on what this Disability Bond is all about, but, money is money.

You can find out more information about this new financial assistance directly from the Canada Revenue Agency’s web site page on the Registered Disability Saving Plan. I strongly recommend you read it as it is pretty well written and clear, stating information such as lifetime maximum contribution of $200,000, no annual limit, contributions permitted until the end of the year in which the special needs person attains 59 years of age, and so on.

Surprisingly it does not mention, as Emad did to me, that if you withdraw any amount from the account for the first 10 years that the applicable portion of the grant needs to be returned to the government. Bottom line: the funds are meant to be left in the RDSP plan for the long term, which is OK by me. In 10+ years time cost of living will be even higher than it is today so she will need that money more in the future than we do at the present (not that she doesn’t need it now :)).

I also suggest you contact BMO Investments because as of right now they are the ‘only game in town’; i.e. the only financial institution  currently providing this account. Heck, even ask to speak with Emad Rizk!

Lastly, remember I mentioned above that the benefits are adjusted based on income levels; well, as far as I can tell it is based on family income. It is important you understand what is meant by ‘family’ for this program.

According to Emad, if the beneficiary  (i.e. special needs person) is under 18 years of age then family includes his / her parents income.

However, if the beneficiary is 18 years of age or older, then family does not include his / her parents. This distinction is very important. I initially thought when I first heard of this program that family would always mean our daughter’s parents (i.e., us) which would limit the amount of benefit she would receive. However, with our daughter 21 (i.e. more than 18 years old) the amount of the grants and bond is based on her income alone (unless / until she marries at which time her spouse’s income would be considered part of her family income).

So, check out the links above, and open the account for your special needs family member, or possibly your own if you qualify, and make what ever contribution you can up to $1,500 before the end of the year to receive the 2008 benefit.

And, please do say hello to Emad for us if you do speak with him on the phone about this (he can be reached at 1-800-665-7700 ext. 4854). He was very patient explaining the details with us. Heck, he even emailed to use the two forms mentioned above while we are talking on the phone.

To see a follow-up to this article simply select this link to ‘Be Careful’.