If the beneficiary recovers

If the beneficiary recovers from their disability, they must close their RDSP.

A beneficiary is considered to have recovered from their disability if they no longer qualify for the Disability Tax Credit.

Closing the RDSP

The RDSP must be closed by December 31 following the first calendar year that the beneficiary no longer qualifies. Here’s what happens to the funds:

  • Any government grants and bonds that have been in the RDSPRDSP See Registered Disability Savings Plan.+ read full definition for less than 10 years must be repaid to the government.
  • The beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition will receive any funds left in the RDSP after any government grants and bonds are repaid.

In the case that a medical doctor certifies that the beneficiary may become eligible for the Disability Tax CreditTax credit The amount you can deduct from your income when you file your taxes. This lowers the tax that you owe.+ read full definition (DTC) in the future, the RDSP holder can postpone closing of the plan for 4 calendar years after becoming ineligible for the DTC. After this time period, the plan must be closed if the beneficiary remains ineligible for the DTC. Learn more about postponing closure of an RDSP.

Tax consequences

The beneficiary may have to pay taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on the portion of the money in the RDSP that comes from:

  • government grants and bonds held in the RDSP for more than 10 years, and
  • investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition.

The beneficiary won’t pay tax on the portion that comes from contributions made to the RDSP.

You’ll have to repay any government grants and bonds that have been in the RDSP for less than 10 years.

Key point

In most cases, an RDSP must be closed by December 31 following the first calendar year that the beneficiary no longer qualifies for the Disability Tax Credit.

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