RDSP funds are safe from clawback by government

March 20, 2019

Budget 2019 will ensure that RDSP funds are safe when individuals are asked to reapply for the DTC and subsequently denied the tax credit. These individuals will no longer be required to close their RDSP accounts and  repay government contributions of bonds and grants. This is a huge victory for thousands of Canadians living with disabilities who are at risk of losing the DTC when they no longer qualify for  the tax credit. 

The concerns regarding the egregious practice of clawing back government contributions and closing the RDSP accounts were shared by a number of organizations, the Disability Advisory Committee (DAC) and the Senate Standing Committee on Social Affairs, Science and Technology.

Cheryl Hardcastle, NDP Critic for Persons Living with Disabilities, meets with Lembi Buchanan, Director of Disability Tax Fairness and Member of Government’s Disability Task Force.Cheryl Hardcastle, NDP Critic for Persons Living with Disabilities, meets with Lembi Buchanan, Director of Disability Tax Fairness and Member of Government’s Disability Task Force.

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In February 2019, I met with my MP Murray Rankin, MP Cheryl Hardcastle and others in his Ottawa office to discuss my report, The Registered Disability Savings Plan: the need to prevent the risk of loss. The financial consequence, especially for people living on marginal incomes can be catastrophic if they are required to terminate their RDSP accounts. The government had already clawed back close to $27 million from 4,503 by the 2016-2017 tax year.

John Doe, a young man living with severe autism, who had been receiving the DTC since 1990, was at risk of losing tens of thousands of dollars in government clawbacks from his RDSP when asked to reapply last year and denied the DTC. An appeals officer decided that he no longer qualified because he was now able to bathe himself and go out into the community on his own. John Doe's representative filed a Notice of Appeal with the Tax Court of Canada and the case was quickly settled out of court.

Far too many people have been unjustly denied the DTC. To make matters worse, the money set aside by the federal government to assist with the future needs of some of the most vulnerable members of our society was clawed back without apology. We are now asking the government to do the right thing and make the decision to fix the RDSP retroactive.

In addition to the changes relating to the eligibility for the DTC and RDSP, the government also proposed that amounts held in RDSPs be exempt from seizure in bankruptcy, with the exception of contributions made in the 12 months before filing. This change would align the rules governing RDSPs to those of RRSPs.