Federal Financial Supports for Canadians with Down Syndrome
By Glen Hoos
Reprinted from 3.21: Canada’s Down Syndrome Magazine (Issue #21: The Money Issue). Click here to download the full magazine.
When a family has a child with Down syndrome, there are many new, complex topics for them to familiarize themselves with. Few are as complicated as finances.
Financial planning takes on an added dimension when an individual has a disability. It can be a scary, overwhelming endeavour to learn about the various supports on offer, and a great deal of work to put the pieces in place to take full advantage of the available resources.
Here in Canada, our federal government offers several noteworthy forms of financial support to people with disabilities and their families. Below, we attempt to cut through the haze surrounding three of them: the Disability Tax Credit (DTC), the Registered Disability Savings Plan (RDSP), and the forthcoming Canada Disability Benefit (CDB).
Disability Tax Credit (DTC)[i]
When a child with Down syndrome is born in Canada, the first financial step for the family is to apply for the Disability Tax Credit (DTC).
The DTC is a non-refundable tax credit created by the federal government to assist people with disabilities and their families with the costs of having a disability or substantial impairment. It accomplishes this by reducing the amount of income tax the disabled person and/or their caregivers pay. The DTC also provides an extra supplement if the qualifying individual is under 18 years of age at the end of the taxation year.
The tax credit is broken down into provincial and federal amounts, with the federal portion being the same across the country and the provincial percentage varying. In most cases, qualifying for the disability tax credit can reduce an individual or family’s taxes by several thousand dollars per year.
Qualification for the Disability Tax Credit is not based on diagnosis. Instead, to be found eligible for the DTC, the individual must experience difficulty performing daily life activities such as:
- Walking
- Mental Functions (Mental Illness & Psychological Impairment)
- Dressing
- Feeding
- Eliminating (bowel or bladder functions)
- Hearing
- Speaking
- Vision
- The cumulative effect of significant limitations
- Life-sustaining Therapy
The application for the DTC must be completed by a physician. The medical practitioner must certify that you have a severe and prolonged impairment or marked restricted in one of the above categories, or significant limitations in two or more categories, or that the individual requires life-sustaining therapy to support vital function. Although Down syndrome is not an automatic qualifier, the vast majority of people with Down syndrome are ruled eligible.
In 2024, the federal government announced that it will begin covering physician fees for completing the DTC application, in conjunction with the forthcoming Canada Disability Benefit.
Once ruled eligible for the tax credit, the individual is eligible for back payment, dated to when the disability began (to a maximum of ten years). For people with Down syndrome, this is the date of birth.
The Disability Tax Credit is a gateway that leads to other important benefits, such as the Child Disability Benefit (a supplement payment added to the monthly Child Care Benefit), the Registered Disability Savings Plan (RDSP), and the forthcoming Canada Disability Benefit. As of this writing, the only way to qualify for any of these benefits is by first qualifying for the DTC, so families should apply for the DTC at the earliest possible date.
For more information on applying for the Disability Tax Credit, consult the Canada Revenue Agency (CRA) or click here.
Registered Disability Savings Plan (RDSP)[ii]
Once an individual has qualified for the Disability Tax Credit, they are also eligible to open a Registered Disability Savings Plan (RDSP). The RDSP is a Canada-wide registered matched savings plan specifically for people with disabilities. It is intended as a long-term savings plan (minimum of ten years).
The government of Canada makes generous matching and standalone contributions to an individual’s RDSP, allowing money to accumulate quickly. However, there are restrictions around when and how that money can be withdrawn, which are important to understand in order to determine whether the RDSP is the right financial tool for your loved one with Down syndrome.
There are numerous benefits to an RDSP, including:
- Over a lifetime, the government may contribute up to $90,000 to your RDSP
- If you have a low income and cannot make contributions yourself, the government will still contribute up to $20,000 on your behalf (see below for more information on the Canada Disability Savings Bond)
- RDSP withdrawals do not impact provincial disability benefits
- Anyone can contribute to the RDSP, including family, friends, neighbours, charities, foundations, and organizations
Government contributions take two forms:
- Canada Disability Savings Grant: Through the savings grant, the government will match contributions made to the RDSP by the individual or anyone who contributes on their behalf. Depending on income, the government will contribute up to $3 for every $1 contributed up to $500, and $2 for every $1 contributed for the next $1,000. This means that if a family is able to contribute $1,500 per year, the government will contribute $3,500. (Note: the government contributions are less if the beneficiary’s income is over $111,733.) There is a lifetime government contribution maximum of $70,000 through the Disability Savings Grant.
- Canada Disability Savings Bond: Through the savings bond, the government will contribute up to $1,000 per year, regardless of whether any personal contributions are made. If net income is less than or equal to $36,502 per year, the federal government will contribute the full $1,000. If net income is between $36,503-55,867 the government will make a partial contribution, and if net income is greater than $55,867, the government will not contribute. For the purposes of the savings bond, when the beneficiary is under the age of 18, it is based on family income, so many children with Down syndrome may not receive the savings bond. However, once they turn 18, it is based on the individual’s income, so many adults with Down syndrome will begin receiving the savings bond at that time.
The combination of government contributions, personal contributions, and earned interest make the RDSP a potentially powerful savings tool. Someone saving $1,500 a year for over 30 years may find their RDSP worth nearly half a million dollars by the time they begin withdrawing from it. However, the rules around withdrawals may impact the amount the beneficiary ultimately receives.
As mentioned, the RDSP is a long-term savings plan. In fact, it is primarily designed to create a retirement income for people with disabilities beginning at age 60, providing recurring payments for approximately 23 years. Because most beneficiaries won’t receive much or any CPP, the RDSP can be an important safety net for their retirement years.
This complicates things for people with Down syndrome, who currently have a life expectancy of around 65 years. In most cases, these individuals will want to begin withdrawals earlier in life.
The RDSP does allow for earlier withdrawals, but they can come at a price. Early withdrawals are governed by the 10-Year/Proportional Repayment Rule, which is this: if there were any government grants or bonds deposited into the RDSP within the past 10 years, withdrawals will involve having to pay back some of those government contributions.
The proportional repayment rule means that for each $1 withdrawn from an RDSP, you will lose $3 of any grants or bonds paid into the plan in the previous 10 years, which is repaid to the government. All personal contributions and interest earned are considered the property of the beneficiary and will not need to be repaid to the government at any point.
Suppose you wish to begin withdrawals when the beneficiary with Down syndrome is 40 years-old. The RDSP was opened in early childhood, with government contributions being made right up until the age of 40. In this case, all government contributions that were made before the individual turned 30 will remain in the RDSP, but any government contributions made between the ages of 30-40 may need to be repaid according to the above rule (the exact amount of the repayment will depend on the amount of the withdrawal).
This does not mean there is no value in an RDSP for people who intend to start withdrawals at an earlier age. In the above example, the person will still benefit from the first 30 years of government contributions (not to mention personal contributions and interest). But the benefit may not be as great as expected if they have not factored the 10 Year Rule into their planning.
The implication of this for people with Down syndrome is that it pays to start early and save as much as possible in those early years. If a family is able to contribute $1,500 per year starting when the child is born, by the time that child turns 20, they will already have received the maximum $70,000 in government matching available through the savings grant. Consequently, by the time the child turns 30, all that money will be safe from the 10 Year Repayment Rule and will remain available to them if they begin early withdrawals. The earlier you can bank the government funds, the sooner you can begin withdrawals without having to repay it.
There are other considerations surrounding withdrawals that are important to be aware of. It is not necessarily like a bank account that you can withdraw from anytime you want, in any amount.
There are two ways to withdraw money from an RDSP. The first is through Lifetime Disability Assistance Payments (LDAPs), which operate similarly to a pension. The LDAP is a series of recurring withdrawals from an RDSP to the beneficiary. These payments continue at least once/year until there are no funds left in the RDSP or the beneficiary dies. LDAPs generally begin at the age of 60, but in certain circumstances, an LDAP can be requested earlier in life.
The second way to get money out of an RDSP is through one-time withdrawals, known as Disability Assistance Payments (DAPs). The amount that can be withdrawn at one time depends on the composition of the RDSP. If you have more personal contributions than government contributions in the account, you are free to withdraw any amount. You can even withdraw the full value of the RDSP and move it into another investment vehicle.
However, if the RDSP contains more government contributions than personal contributions, the one-time withdrawal amount will generally be capped at 10% of the fair market value of the plan assets at the beginning of the year.
Because of the complexity of the RDSP, and the special considerations for people with Down syndrome, it is recommended that families seek the advice of a financial planner to determine whether the RDSP is well suited to your circumstances, and how best to maximize the value of this investment vehicle for your loved one.
Canada Disability Benefit (CDB)
In 2020, the federal government of Canada committed to create the Canada Disability Benefit (CDB), with the stated aim of lifting working-age Canadians with disabilities out of poverty. On June 22, 2023, the Canada Disability Benefit Act received Royal Assent, having been passed with all-party support.
Following an extensive public consultation process in which the Canadian disability community united to advocate for an inclusive benefit that would raise Canadians with disabilities above the poverty line, the proposed Canada Disability Benefit Regulations were published in the spring of 2024.
Unfortunately, the regulations fell short of the expectations of the disability community in almost every respect, including the amount of the benefit, the nature of means testing, eligibility and application requirements, and timeline for implementation.
Nevertheless, payments of the monthly benefit for eligible adults with disabilities, to a maximum of $200 a month, are scheduled to begin in July 2025. Even as the Canadian disability community continues to advocate for a stronger, more substantial benefit, the CDB will be an important form of support for adults with Down syndrome going forward.
Eligibility for the Canada Disability Benefit is tied to the Disability Tax Credit (see the first section of this article). Those who are eligible for the DTC will automatically qualify for the CDB, dependent on income. Therefore, if you have not yet applied for the Disability Tax Credit, this is another reason to do so soon, particularly if your loved one with Down syndrome is approaching adulthood.
To learn more about the Canada Disability Benefit and to get involved with advocating for improvements to the benefit, we recommend following Disability Without Poverty.
[i] The Disability Tax Credit Resource Guide, https://disabilitycreditcanada.com/disability-tax-credit-ultimate-resource-guide/
[ii] The Plan Institute’s RDSP Tutorial: https://www.rdsp.com/rdsp-tutorial/