The last few months have been something of a political whirlwind here in Canada, with our recent federal election. It certainly was one of the more dramatic and unpredictable elections of my lifetime!
I am sure that we are all wanting to move on from politics for the summer, however, something very unusual came up in the election a few days between the vote. During a podcast interview, Conservative leader Pierre Poilievre spoke about his six year-old daughter who is non-verbal. A few papers picked up on this story, which in itself was unusual – unlike the USA, here in Canada, family members of politicians are almost always considered off-limits by the Canadian media. Other than a brief mention, it stayed well off the public radar.
The article that I read reminded me of another federal conservative politician with a disabled child, Jim Flaherty, who was our Minister of Finance from 2006 to 2014. Flaherty was a remarkable and distinctive person, and, from what I have read stands out as having had strong relationships and friend with people from other political parties, even those with dramatically different political views. During his tenure, he was responsible for implementing a number of significant measures: the banning of Income Trusts, the introduction of the Tax Free Savings Account (TFSA), abolishing the penny, and, perhaps most importantly, the Registered Disability Savings plan (RDSP). This latter account was one that was of deep personal importance to Flaherty, and his wife Chrstine Elliott (who served as an Ontario MPP and Cabinet Minister herself.)
Parental Champions
As parents of triplets, Flaherty and Elliott understood the challenges of a special needs child on a first hand basis. One of their children had developed encephalitis as a toddler, which resulted in cognitive and learning impairments. Their experience as parents of a disabled child led to them co-founding Abilities Centre in Whitby, Ontario, and Elliott has been a board member and volunteer with a number of Health, Children’s and Mental Health charities.
The announcement of the RDSP program was clearly of personal importance to Flaherty. In 2011, as he announced a review of the newly established program, Flaherty, known as a “tough guy” in the cabinet, wept openly during the announcement. I am quite certain that he understood, and was proud of the impact that the RDSP was having on many Canadian families.
What is an RDSP?
The RDSP was first created in 2007 under legislation. For many years, several organizations representing disabled individuals in Canada had lobbied Ottawa for the creation of a program that would allow disabled families to save long-term, and not be penalized by other support programs, such as Ontario Disability Support Program (ODSP), here in Ontario. Flaherty was a huge champion of these proposals, and was able to help fast-track the program development once he became Finance Minister.
Under the plan, which came into effect on Dec 1, 2008, disabled individuals (or their guardians, in the case of minors and those without capacity) could open a tax-deferred account.
As the rules stand today, an RDSP can be setup for an individual who qualifies for the Federal Disability Tax Credit (DTC), provided that that the account is being opened sometime before the end of the calendar year in which they will be turning 59. A maximum of $200,000 can be placed into the account over the beneficiaries lifetime, with no annual limit.
For those 49 and younger, a pair of federal government grants are available. For low-income individuals, $1000 a year (up to a lifetime cumulative maximum of $20,000) is payable to the RDSP, regardless of any contributions. As of 2025, the full grant is paid if the beneficiary’s family income is less than $37, 487. Those with higher family incomes will receive a reduced amount, which is completely eliminated once $57,375 of income is reached.
Another program, the Canada Disability Savings Grant provides a matching grant. For individuals with family income of $114,750 and below, the government will match $3 for $1 on the first $500 of contributions, and $2 for $1 on the next $1000. Maximum grants are achieved once $1500 is contributed. For those with more than $114,750, the grant will be matched $1 for each $1 contributed, to a maximum of $1000.
For both the bond, and the grant, amounts can be received retroactively.
It is also important to recognize that if money is withdrawn from the plan, grants and bonds paid into the plan in the past 10 years will be returned to the government, unless the beneficiary has a reduced life expectancy of 5 years or less. As such, this makes it best for individuals who have received the bond or grant to wait until age 60 to begin making withdrawals from the plan. In essence, the RDSP is designed to provide retirement income, and not usually income within the beneficiaries “working years”, even if they are unable to work. In fact, the rules require withdrawals to start by the end of the year the beneficiary turns 60.
After age 60, minimum and maximum withdrawals are calculated using a formula in the income tax act, which is more complicated than calculating RRIF withdrawals. However, after age 80, the withdrawal amount will be frozen approximately 1/3rd of any remaining value.
Taxation on RDSP withdrawals are very similar to those of RESPs – the original contributions are not subject to income tax, but Grants, Bonds and growth on the investments are considered taxable. Interestingly, the latter category are excluded from calculating income for several low-income benefits, such as the HST credit, the Canada Child Benefit and the Canada Workers Benefit, amongst others.
The estate trap!
One of the more interesting “quirks” of the RDSP is that if the beneficiary passes away, the RDSP proceeds form part of their estate, and are subject to the terms of their will – so it is very important that the beneficiary has a valid will in place.
This is a problem though if the nature of the disability impacts the capacity of the individual to execute a will – as would be the case for many cognitive disabilities, for example. This often comes as a surprise to parents who setup – and paid into – the RDSP for their disabled child. Even if they are the subscriber, the assets in the RDSP are treated as the beneficiary’s property – other than grants and bonds issued in the previous ten years, which are returned to the government. I’ve seen this come as a shock to many parents who were not aware of the implications. Think carefully about opening an RDSP for someone with a reduced life expectancy who isn’t able to execute a will due to capacity or age limitations! It is quite possible in this situation that funds will be tied for years if the beneficiary passes away. In Ontario, an estate without a will is determined by a set formula, and the Office of the Public Guardian and Trustee (OPGT) will need to be involved.
Beyond this, it is also important to realize that an RDSP cannot be transferred to another beneficiary – it is tied to one individual. So, for a family with multiple family members eligible for an RDSP, there is no way to “roll” the funds to another family member who might need it if the beneficiary passes away. A complete withdrawal would need to be made while the beneficiary is still alive (and incur any taxation that might apply), or wait for the estate to settle and have funds flow through the deceased will (if one exists).
Integration with provincial disability plans
In most provinces RDSP plans are exempt from inclusion in means-tested disability programs, such as Ontario Disability Support Program (ODSP), and its equivalent in other provinces. In Quebec, New Brunswick and PEI, however, the RDSP is only partially exempt. In these three provinces, the RDSP balance does not create any issues, however, income payments from an RDSP have certain limitations.
Dual citizens should be cautious
The RDSP was created long after the USA-Canada tax treaty came into effect. If the beneficiary or subscriber are a US citizen, cross border tax planning advice is necessary, as the RDSP is likely taxable in the United States, and may have other reporting requirements.
A great program introduced by a competent and compassionate Minister of Finance.
Jim Flaherty’s introduction of the RDSP is now almost two decades old, and there is no question that it has been a game changer for many disabled Canadians, presumably including Jim and Christine’s son. It may be several more years until we see our first “Fully funded” RDSPs, which have completely utilized government grants and bonds to maximize their impact.
Jim Flaherity passed away from a heart attack only a month or so after leaving public service. While I did not fully align with many of his political views, he is, to me, one of the Finance ministers I respect the most in Canadian History. Along with the RDSP, he also put the breaks on Income Trusts, which was a controversial, but necessary public policy move that left many people upset. He also was finance minister during the 2008 financial crisis, and worked diligently during this time to tighten up rules for bank and mortgages that were not always popular, but again necessary. These three items likely be viewed by history as his most memorable contributions to our country in his time as Finance Minister.
For me, however, I can’t help but think that his and Christine’s experience gave him a sense of compassion that I wish we saw more often in modern politics. When he passed away, tributes came in from across the political spectrum. There are two quotes that stood out to me. The first was then prime-minister Stephen Harper, who in delivering the Eulogy for Flaherty remarked “…Jim, as fiercely partisan as he was, was also genuinely liked and respected by his opponents, liked by his enemies”.
The vitriol of the last few years of politics has left many of us with a feeling that politicians, as a whole, have focused too much on dehumanizing others. I can’t think of any greater tribute to Flaherty, and the legacy of the RDSP he has left behind, than a quote by his friend Jamie Watt printed by the CBC days after his passing.
“[He] was always sneaking things into his budgets to help those less able than himself.”
I hope the legacy of our newly elected members of parliament will be just as compassionate and kind. Certainly, Jim Flaherty’s legacy has been impactful, nearly two decades after his passing.
Ryan