Kenneth Pope speaks about transferring tax credit benefits from a disabled adult child to a family member or sibling who is assisting the child with food, shelter, or alternative support.
If you have a child or family member with disabilities or special needs they may qualify for the disability tax credit.
Now that person may be receiving provincial disability benefits but that doesn’t automatically mean that they qualify for the disability credit. In order to qualify they have to be markedly restricted or take substantially longer to do certain things, so it’s a matter of having a form filled out by the families family doctor and then submitted to Canada revenue to be approved and then once the credit is approved the credit can be used by being transferred from that family member, the child, to a tax paying parent or perhaps a sibling and it can be transferred if they help to some extent with food or shelter or clothing.
Now, if the child lives with you then, of course, the credit is transferable and if this is the case then the child can have a registered disability savings plan. Now the short story is that if they are approved for the disability credit and set up an RDSP, then if you contribute $1,500 a year the federal government will contribute 4,500 dollars and this will go on for 20 years or until they turn 49. So you can see that if you put in over 20 years $30,000 and the government puts in $90,000 and then if this is invested over that period at 5%, which is quite do-able, then at the end of that period it’s approximately 200,000 dollars. And then if it sits there invested until the child turns 60, which in practice this is the case it’s basically a pension and if you take the money out sooner then you lose the grants and bonds, then at that time, it will have accumulated to approximately 500,000 dollars. So from an estate planning perspective, this is very important.
This then gets you into the question of well what happens if the child dies. Well of course if the child is capable of doing a will this is fine, if they’re not it’s a question of intestacy and then following intestacy, succession law, which means that the money would be received by the parents if they survive the child or by their siblings or by some extended family member if it comes right down to that. But still, making this investment is a worthwhile thing to do and should be discussed at the first opportunity if the child doesn’t have an RDSP.