Loss of Eligibility for the Disability Tax Credit
Many people are concerned with the implications of losing their disability tax credit eligibility, either for a short period or for the rest of their lives. People with mental health issues and some medical conditions, for example multiple sclerosis, may be less impacted by their health issue for a short or long period. Recovery is seldom complete but it may be sufficient to lose the disability tax credit. In either case, people who lose their eligibility as a result of an improvement in their condition were still earning disadvantaged in the past and may continue to be so in the future.
Current policy requires that the RDSP be wound up by the end of the second year in which eligibility is lost. Many people who are worried about losing their eligibility for the DTC and having to wind up their RDSP are hesitant to open RDSPs.
While people who lose their eligibility for the DTC should not be eligible for the Canada Disability Savings Grant and Bond programs, there seems to be little downside in permitting them to maintain an RDSP. This would assist them in achieving future financial security, irrespective of their disability tax credit status, and should remove some of the disincentive to opening RDSPs that they currently experience.
Furthermore, if they re-qualify for the Disability Tax Credit after not having qualified for a period of time, then they should once again be eligible for the Grant and Bond, assuming they are within the timelines.
Recommendation: Do not collapse the RDSPs of people who lose their eligibility for the disability tax credit.