Transcript National Early Warning System

Income Tax Withholding on
Registered Disability Savings Plans (RDSPs)
Presenters
 Dian Hardiman
 Joumana Nasrallah
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Today’s Topics
 Purpose of information session
 Background information on RDSP
 New withholding requirements
 Benefits of withholding
 Examples
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Purpose of Information Session
 Effective January 2014, financial institutions (FIs)
will deduct income tax from RDSP payments.
 Treasury Board of Canada Secretariat requires
communication with stakeholders before
implementing the regulatory changes.
 Two stakeholders were identified:
• Financial Institutions (FIs); and
• associations representing persons with disabilities.
 Information sessions are occurring from April to
May with associations to inform them of the
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change.
What is an RDSP?
 It is a long-term savings plan to help Canadians
with disabilities and their families to save for the
future.
 In order to be an RDSP beneficiary, a person
must first qualify for the disability tax credit
(disability amount).
 Contributions can be made until the beneficiary
turns 59.
 Contributions made to an RDSP are not tax
deductible.
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Grants and Bonds
 The Government of Canada contributes amounts to an
individual’s RDSP:
• Grants are matching payments made by the
Government (up to $3,500 per year).
• Bonds are payments made by the Government
(up to $1,000 per year) for low and modest-income
Canadians.
 Individual contributions can be made by various
individuals.
 There is a lifetime limit for individual contributions.
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About the RDSP Payments
 There are two types of payments made out of an
RDSP:
• lifetime disability assistance payments (LDAPs); and
• disability assistance payments (DAPs).
 Both payments can be made individually or at
the same time within a calendar year.
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Rollovers from RRSPs to RDSPs
 Effective July 1, 2011, amounts held in a
deceased annuitant’s registered retirement
savings plans (RRSPs) can be rolled over to an
RDSP, if the beneficiary is financially dependent
and qualifies for the disability tax credit.
 The amount of the rollover is counted as a
private contribution.
 It must be treated as part of the earnings of a
DAP or LDAP for determining the taxable portion
of the RDSP payment.
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Taxable Income
 The following amounts are taxable income when
payments are withdrawn from the plan:
• Canada disability savings grant;
• Canada disability savings bond; and
• investment income earned in the plan.
 Individual contributions that are withdrawn are
not taxable income.
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Reporting Requirements
 FIs will issue a yearly T4A slip to beneficiaries for
the taxable portion of any RDSP withdrawal.
 Beneficiaries must include the amount reported
on the T4A as income on their income tax and
benefit return.
 If a beneficiary passes away after a payment is
made, it is included in the income of the
beneficiary’s estate for the year the payment was
made.
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Income Tax Act
 In 2007, the Act was amended to require income
tax to be withheld at source on payments made
from an RDSP.
 The amount to be withheld must be calculated
according to the Income Tax Regulations (the
Regulations).
 Starting January 1, 2014, the FIs will be required
to withhold income tax at source.
 There are no retroactive provisions.
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Benefits of Withholding at
Source
 If withholding is not done at source by the FIs,
beneficiaries may have a tax liability.
 Withholding on RDSP payments at source will
reduce the financial burden on beneficiaries.
 The rates established will ensure withholding is
as close as possible to the tax liability.
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About the Rates
 The rates will be determined based on the
taxable portion of the RDSP payments.
 The withholding rates will be:
•
10% (5% for Quebec) on amounts up to and including
$5,000;
•
20% (10% for Quebec) on amounts over $5,000 and up to
and including $15,000; and
•
30% (15% for Quebec) on amounts over $15,000.
 Those rates will be applied to the taxable portion
of the payments less the basic personal amount
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(BPA) and the disability amount (DA).
Withholding Rate for
Non-Residents
 Non-residents can also be RDSP beneficiaries.
 A 25% withholding rate will be applied to the
taxable portion of the RDSP.
 The FIs will provide them with an NR4 slip.
 For more information, individuals can call the
International Tax Services Office at 1-855-2845942 (for services in English) and 1-855-2845943 (for services in French).
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Withholding on LDAPs
1. Estimate the running total of all LDAPs
expected to be paid during the year.
2. Determine the taxable portion of the LDAPs.
3. Determine the withholding rate based on the
taxable portion of the total of all LDAPs.
4. Apply the withholding rate to the LDAPs, less
the BPA and the DA.
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Withholding on DAPs
1. Determine DAP payment (withholding will be
applied on every DAP payment).
2. Determine the taxable portion of a DAP.
3. Determine the withholding rate based on the
taxable portion of the DAP.
4. Apply the withholding rate to the DAP, less the
BPA and the DA.
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Example 1
1 DAP
 Bond amount
 Grant amount
 Contributions
 Earned investment
$65,000
$
0
$10,000
$40,000
$15,000
Questions:
 What is the taxable amount?
 What is the withholding rate?
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Answer to Example 1
1 DAP
Minus the contributions
Equals the taxable amount
Applicable withholding rate is
Calculation
Taxable amount
Minus the BPA and DA
Equals amount subject to withholding
Tax withheld at 30%
$65,000
-$40,000
$25,000
30%
$25,000
-$18,735
$ 6,265
$ 1,88018
Example 2
12 LDAPs of $1,850
 Bond amount
 Grant amount
 Contributions
 Earned investment
$22,200
$
0
$ 3,000
$15,000
$ 4,200
Questions:
 What is the taxable amount?
 What is the withholding rate?
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Answer to Example 2
12 LDAPs X $1,850
Minus contributions
Equals the taxable amount
Applicable withholding rate is
Calculation
Taxable amount
Minus the BPA and DA
Equals amount subject to withholding
Tax withheld at 20%
$22,200
-$15,000
$ 7,200
20%
$ 7,200
-$18,735
$
0
$
020
Example 3
12 LDAPs of $5,000
 Bond amount
 Grant amount
 Contributions
 Earned investment
$60,000
$
0
$10,000
$36,000
$14,000
Questions:
 What is the taxable amount?
 What is the withholding rate?
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Answer to Example 3
12 LDAP X $5,000
Minus contributions
Equals the taxable amount
Applicable withholding rate is
Calculation:
Taxable amount
Minus the BPA and DA
Equals amount subject to withholding
Tax withheld at 30%
$60,000
-$36,000
$24,000
30%
$24,000
-$18,735
$ 5,265
$ 1,58022
Calculation Chart
$
A
Month
Jan
Feb
Mar
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Total
LDAP
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
$5,000
Taxable Portion
B(i)
Basic
Amounts
Personal
Previously
Amount +
Included in A
DA in 2013
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$2,000 $18,735
$60,000 $24,000
B(ii)
$0.00
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
$22,000
B
(B(i)-B(ii))
$18,368
$16,368
$14,368
$12,368
$10,368
$8,368
$6,368
$4,368
$2,368
$735
$0.00
$0.00
(A-B)
Rate
Amount
Subject to
Withholding
ITA
Regs
103(4)
Amount
Withheld
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$380
$600
$600
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$1,265
$2,000
$2,000
$5,265
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$1,580
Example 4
12 LDAPs of $3,000
2 DAPs:
$36,000
$21,000
• 1 payment in May $9,000
• 1 payment in Sept $12,000
 Bond amount
 Grant amount
 Contributions
 Earned investment
$
0
$13,000
$19,000
$25,000
Questions:
 What is the taxable amount?
 What are the withholding rates?
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Answer to Example 4
12 LDAPs X $3,000
Minus contributions
Equals the taxable amount
$36,000
-$12,000
$24,000
2 DAPs
Minus contributions
Equals the taxable amount
$21,000
-$ 7,000
$14,000
Applicable withholding rates:
Taxable amount of LDAP of $24,000
30%
Taxable amounts of DAPs total of $14,000
• 1 payment in May $6,000
• 1 payment in Sept $8,000
20%
20%
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Cont’d Answer to Example 4
Calculation:
Taxable amount LDAP
Total taxable amount of DAPs
Minus the BPA and DA
Equals amount subject to withholding
$24,000
$14,000
-$18,735
$19,265
Taxes Withheld
Tax withheld at 30% on LDAP
Tax withheld at 20% on DAP payment
$3,380
$1,600
Total tax withheld on LDAPs and DAPs
$4,980
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Calculation Chart
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Open Communication Approach
 The Canada Revenue Agency (CRA) is
committed to communicating with stakeholders
and to providing them with information their
members need.
 More information about the RDSP is available on
the CRA website.
 The CRA may hold a webinar to inform
stakeholders of the changes.
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Points of Contact
 Visit our Web site:
• For beneficiaries: www.cra.gc.ca/rdsp
• For plan administrators:
www.cra.gc.ca/tx/rgstrd/rdsp
 Call the CRA’s individuals’ enquiries line at
1-800-959-8281.
 For more information regarding the program,
please visit the Web site of Human Resources
and Skills Development at
www.disabilitysavings.gc.ca.
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QUESTIONS
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