Rollover to a Child or Grandchild’s RDSP: RRIF/RRSP ON DEATH

Normally we think about
rolling RRIFs and RRSPs
to the surviving spouse
upon death, however,
there are other options.
One such option is to roll it
on a tax-deferred basis to
a child or grandchild’s

Registered Disability Savings Plan (RDSP).
A June 26, 2020 Technical Interpretation discussed the
ability to roll funds from a deceased taxpayer’s RRIF to an
RDSP for a financially dependent child or grandchild
eligible for the disability tax credit. This results in the RRIF
funds not being taxable to the deceased and only being
taxable to the beneficiary when funds are withdrawn from
the RDSP.
CRA noted that there is a rebuttable presumption that the
child is not financially dependent if their income for the
year prior to the parent’s death exceeds the basic personal
amount plus the disability amount. For 2020, the basic
personal amount ranges from $12,298 to $13,229, while the
disability amount is $8,576. Where the child’s income
exceeds the threshold and/or the child did not reside with
the deceased, they may still qualify, depending on all of the
facts and circumstances.
Based on the facts of the specific case CRA reviewed, they
indicated that it was reasonable to consider this child to be
financially dependent on the taxpayer, such that the
rollover would be available. The facts included:
– the child suffered from a mental impairment which
made him unable to work;
– the child previously resided with the parents but now
resided in a group home, as the parents’ advancing
age made it difficult for them to provide necessary
care;
– the child resided with the taxpayer on weekends and
holidays;
– the child’s sole income, from provincial disability
support, did not exceed the basic personal amount
plus the disability amount (that is, the income test was
met);
– the child’s income covered only basic room and
board, with all other financial needs provided by the
taxpayer;
– the financial support provided by the taxpayer was
provided on a regular and consistent basis and
consisted of more than merely enhancing or
supplementing an adequate lifestyle for the child;
and
– the child received no other financial support.
CRA noted that, in addition to funds from a RRIF, an RRSP
or a pooled registered pension plan (PRPP), and some
registered pension plan (RPP) receipts, can be similarly
transferred to an RDSP for a financially dependent child on
the death of the taxpayer.
ACTION ITEM: If you have a child or grandchild that is
financially dependent on you and eligible for the
disability tax credit, consider leaving your RRIF/RRSP to
them in their RDSP.

Redistribution of this material is prohibited.