Blog » Rollovers to RDSPs

Rollovers to RDSPs

Parents and grandparents should pay special attention to the federal provision, which permits them (at death) to roll their RRSP or RRIF over to son, daughter or grandchild’s Registered Disability Savings Plan.   The rollover, if used properly in an estate plan, can result in significant tax savings.  Additional tax savings translates into more resources for their loved one who is a beneficiary of the RDSP.


A rollover is when the annuitant (beneficiary) of a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) is able to pass the remaining assets to a dependent at death without paying income tax.  Normally, the entire amount of the RRSP or RRIF is considered taxable income in the year of a person’s death.  When a rollover is used, however, the tax does not have to be paid as a result of an offsetting tax deduction.

For example, if a person passes away with assets of approximately $100,000 in a RRIF, the tax liability (in British Columbia) will be approximately $26,000 if there is no other income in the terminal tax year.  Suppose there is additional income and total taxable income in the terminal year is $140,000; then the tax liability will be approximately $40,000.  Normally, the tax will be paid to Canada Revenue Agency.  Instead, with a rollover those funds can be used for the beneficiary of the rollover.

Rollovers to an RRSP

The Income Tax Act has for many years permitted rollovers of RRSPs and RRIFs to a spouse, a minor child or an adult son or daughter who is dependent as a result of a mental or physical infirmity.  Often, however, a dependent adult son or daughter will be a recipient of provincial disability assistance.  RRSPs are not considered exempt assets in any province, asset limits in most provinces (Alberta and Northwest Territories are the exceptions) are limited, and the consequence is that the tax benefit of the rollover is offset by the loss of provincial disability assistance.  Consequently a rollover to an RRSP of an adult son or daughter with disabilities is most often of limited value.

Rollovers to a Trust

Because rollovers to an RRSP of a son or daughter with disabilities are of limited value, Planned Lifetime Advocacy Network lobbied the federal government to permit the rollover of RRSPs and RRIFs to a trust, which has been the preferred estate planning vehicle for families of people with disabilities.  Although the federal government agreed to this measure in approximately 2005, the legislation has never reached Royal Assent.  The RDSP Resource Centre believes that this commitment will be put into law in Finance Minister James Flaherty’s  upcoming budget on March 29th.  While there will be some constraints around the rollover, if implemented, it will result in another planning tool that will provide a significant tax advantage to many Canadian families.

Rollovers to an RDSP

In 2010, Minister Flaherty, announced the creation of a rollover to an RDSP, which permits parents and grandparents at death to rollover assets in RRSPs and RRIFs to the RDSPs of children and grandchildren.  This is definitely an estate planning option that we would encourage parents and grandparents to explore.  Here are the details that families need to be aware of:

  • The rollover is only available to parents and grandparents (including by marriage and adoption)
  • The rollover happens only at death and is typically initiated by the executor in their duties of probating and distributing the estate
  • A rollover to an RDSP can only occur if the person is eligible for the Disability Tax Credit and the deposit into the RDSP occurs prior to December 31st of the beneficiary’s 59th year
  • The amount of the rollover cannot exceed the contribution room remaining in a beneficiary’s RDSP.  Remember total personal contributions cannot exceed $200,000 so if $100,000 has already been contributed to an RDSP the remaining contribution room is $100,000
  • The rollover to an RDSP is not matched by the Canada Disability Savings Grant
  • While the rollover counts as part of the personal contribution to an RDSP, it comprises part of the taxable component of the asset and is taxed upon withdrawal.  Remember, though, that it is taxed in the hands of the beneficiary and that this can be spread over many years so in most circumstances the tax liability resulting will not be a great as if the asset were taxed in the estate

The rollover to an RDSP is definitely an estate planning option to be considered because of the significant tax savings. Our strong recommendation, however, is that family members who are planning their estate and executors who are probating the Will and filing the terminal tax return, secure knowledgeable legal and tax assistance.

If you are an executor seeking tax assistance from a disability tax specialist with the rollover and terminal tax returns, contact Ability Tax Group LLP

If you are an executor seeking legal assistance in probating a Will or a parent or grandparent planning your Will, contact Pooran Law.