Tag: Disability

Disability public assistance – Ontario ODSP

Ontario Disability Support Program

Living with a disability can pose personal and emotional challenges. As well, there are often direct financial costs and economic challenges, both for the individual and surrounding family.

For Ontarians, the Ontario Disability Support Program (ODSP) is the anchor program assisting individuals and their families managing with disability needs. While it has many components, at its core ODSP delivers financial assistance for essential living expenses, provides a number of health care benefits, and offers help in finding employment and advancing a person’s career.

Here is an overview of the key features of ODSP.

Your rights and your responsibility

As an Ontarian 18 years or older with a disability, you have the right to apply for ODSP support. A caseworker reviewing your application is guided by policy directives intended to assure consistent service across the province, balanced with the discretion to cater to individual needs and circumstances.

At the same time, be aware that as a large public program, ODSP has plenty of administrative structure and financial oversight, with practical implications for the path that lies ahead for you. This includes detailed initial financial disclosure, regular caseworker reviews, and your continuing obligation to report and make first use of your own financial resources, supplemented by this public support program.

What is a “disability” for ODSP purposes?

The disability must be a substantial mental or physical impairment that is continuous or recurring, lasting for a year or longer. It has to be shown that it substantially affects your ability to work, to care for yourself or to participate in the community. This must be verified by a health care professional.

For those who meet the criteria for certain other government programs – the most familiar being the Canada Pension Plan (CPP) disability pension – no further medical evidence of disability is required. However, you must still apply and meet ODSP financial eligibility requirements in order to receive income support.

Two components of income support: Basic needs & shelter allowance

There are two core components of ODSP:

    • Basic needs income support – To help cover food, clothing and necessary personal items
    • Shelter allowance – To help cover rent/mortgage, utilities and other direct housing carrying costs

Note in both cases that it is “to help cover”, which is not an assurance of full coverage.

To show financial need, your household basic living expenses must be more than your income and assets. As ODSP income support is meant to supplement other income, you must seek out any financial resources you or your family may be entitled to receive. This is determined in consultation with a caseworker.

Once available resources are ascertained, attention turns to the number and age of those in the family, and whether your spouse has a disability. With so many variables, a full review is generally necessary to estimate the income support amount in a particular case. For general reference, the table on the following page shows the maximum support amounts available, using some examples of who might be in the household.

Working income affecting income support

You are entitled and encouraged to work. In fact, ODSP Employment Supports offers many resources to help with training, tools, assistive devices and even business start-up mentoring.

If you are indeed working, once your monthly income exceeds $200, 50% of your earnings is deducted from your income support payment. For this purpose, monthly earnings is the net you receive after mandatory payroll deductions like income tax, CPP and employment insurance premiums. The reduction may be offset by the $100 ‘Work-Related Benefit’ paid for each month you are working.

Treatment of income generally

Beyond employment, again all available income sources must be disclosed, including spousal support, business profits, Old Age Security, CPP benefits, and potentially even loans you receive. As with work income, these will reduce ODSP income support.

However, some sources are exempt from that reduction, such as child tax benefits, child support payments and amounts drawn from a registered disability savings plan (RDSP).

Receiving gifts

Each family member in the ODSP recipient’s household may receive up to $10,000 in gifts annually, with any excess treated as income. This dollar limit excludes gifts that go toward a disability related device or service, or into an exempt asset. (See “Asset limits” below.)

Health care benefits

Once you are entitled to income support, there are a number of health care benefits that come with that.

ODSP recipients are eligible for prescription drugs listed in the Ontario Drug Benefit Formulary. For adults there are basic dental services, and children under 18 are automatically enrolled in Healthy Smiles Ontario. If you don’t have eye care under the Ontario Health Insurance Plan (OHIP), ODSP covers routine eye examinations, major examinations for those with a medical condition or infection, and periodic eyeglass prescriptions and repairs.

Asset limits, and loss of income support

You will not be entitled to income support if the value of your assets exceeds a certain level. The limit is $40,000 for a single person or $50,000 for a couple, plus $500 for each dependant other than a spouse. This includes cash, banking and investment accounts, registered retirement savings plans (RRSPs) and tax-free saving accounts (TFSAs), secondary/rental properties and even valuable collectibles (eg., stamps, hockey cards).

Fortunately, there are many items that are exempt. This list includes the home you live in, personal clothing and furniture, your primary vehicle, and funds in registered education savings plans (RESPs) and RDSPs. Also excluded are amounts in life insurance cash values and trusts from gifts/inheritances, together totaling up to $100,000. 

Preserving ODSP with a discretionary ‘Henson’ trust

That mentioned $100,000 limit for trust-held funds and insurance may not be adequate where there are significantly more assets that would otherwise be available to the ODSP recipient. In that case, in order to better preserve ODSP support, a more sophisticated trust arrangement might be considered.

A fully discretionary trust allows a trustee alone to decide the amount and timing of payments to a trust beneficiary who has a disability. Because the beneficiary has no legal right to force the trustee’s hand, ODSP does not include any such property in asset limits. This is commonly known as a “Henson trust” for the 1989 Ontario case that challenged the predecessor Ontario support program.

Even though the trust capital is not considered an asset for ODSP purposes, payments from the trust may be considered income that could affect ODSP support. Payments will generally be considered exempt as income, for example, if used for:

    • approved disability related items, services, education or training expenses that are not reimbursable
    • the purchase of a principal residence or an exempt vehicle;
    • first and last month’s rent necessary to secure accommodation; or
    • any purpose up to $10,000 maximum in a 12-month period.

The use of a trust in this way should not be taken lightly, as it places a very high degree of power and responsibility in the trustee. A qualified trust lawyer familiar with disability issues can advise on whether and how to proceed, taking a view of the totality of circumstances. For an in-depth discussion of this topic, please see the companion article Disability needs planning using trusts.

RDSP – Registered Disability Savings Plan

Tax-sheltering disability savings, with a government boost

The Registered Disability Savings Plan (RDSP) is a long-term savings tool for a person who is eligible for the disability tax credit (DTC). It has three main financial benefits:

    1. Government money added to personal contributions
    2. Tax-sheltered growth of personal and government money in the plan
    3. Tax eventually borne by the plan beneficiary, not the contributors

Who qualifies to use a RDSP?

A RDSP may be opened by a person up to age 59 who qualifies for the disability tax credit, and is a Canadian resident with a valid Social Insurance Number (SIN). If the application is made (on the beneficiary’s behalf) by someone other than the DTC-qualified person, that applicant must also have a valid SIN. If at a later time the beneficiary no longer qualifies for the DTC, the plan may remain open but no further contributions are allowed.

There can only be one RDSP for a given beneficiary, and only one beneficiary for each RDSP.

How do you set one up?

Application is made to a RDSP issuer, which is a financial institution registered with the government to open plans, receive government bonds and grants, and invest funds as directed by the plan holder.

The plan holder will generally be a parent or guardian if the beneficiary is a minor. An adult beneficiary must be his/her own holder, unless he/she is not contractually competent, in which case it may be a parent, spouse or common law partner, qualifying family member or designated legal representative.

Allowable contributions and their tax treatment

The lifetime contribution limit is $200,000, but there is no annual limit. However, there are annual limits to the amount of government assistance (see CDSB and CDSG below), which could influence contribution timing.

Contributions are after-tax, meaning there is no tax deduction when contributing. Government assistance is not taxable when credited to a plan. While in the plan, there is no tax on income earned on either personal or government contributions.

RRSP rollovers

RDSP contributions may also be by a tax-deferred rollover from a deceased’s registered retirement savings plan (RRSP) or registered retirement income fund (RRIF). The beneficiary must be a child or grandchild who was, at the time of the deceased’s death, financially dependent on the deceased for support by reason of an impairment in physical or mental functions. These contributions are included in the $200,000 lifetime contribution limit but do not attract any matching grants, and will be included in the taxable portion of future RDSP withdrawals.

RESP rollovers

Funds in a registered education savings plan (RESP) may also be rolled over to a RDSP on a tax-deferred basis. The same person must be the beneficiary of the RESP and RDSP. This is an option under RESP rules, where an accumulated income payment (AIP) would otherwise be taxed currently. As with RRSP/RRIFs, such contributions are included in the $200,000 lifetime contribution limit but do not attract any matching grants, and will be included in the taxable portion of future RDSP withdrawals.

Government assistance: CDSB and CDSG

Though a RDSP may receive personal contributions up to age 59, government assistance through the Canada Disability Savings Bond (CDSB/bonds) and Canada Disability Savings Grants (CDSG/grants) are only available up to the beneficiary’s age 49.

The CDSB makes an annual payment to a RDSP, regardless of personal contributions. It can be up to $1,000 annually, with a lifetime limit of $20,000. If the beneficiary qualified for a RDSP in years before the plan was opened, a one-time catch-up up to $10,000 is allowed for unclaimed bond money over the preceding 10 years.

The CDSG matches personal contributions. It can be as much as a 300% match, to a maximum of $3,500 annually, with a lifetime limit of $70,000. Like bonds, up to 10 years of catch-up is allowed, but the maximum that can be received in any one year is $10,500, so it may take a few years to collect all the matching grants.

The amount available under these programs is limited according to family net income (FNI) thresholds indexed annually, as summarized in the following table. When a beneficiary is under 19, FNI is the combined net income of the beneficiary’s parents. Thereafter, it is the beneficiary’s own net income (even if continuing to live with parents), or if cohabiting with a spouse or common-law partner then the couple’s combined net income.

Effect on other public support

Having a RDSP will not affect eligibility for federal programs such as the Canada Child Benefit, GST/HST credit, Old Age Security or Employment Insurance, nor limit access to provincial disability support programs.

Withdrawing funds from the plan

Withdrawals are formally called disability assistance payments (DAPs), and may be taken periodically, or as annual recurring payments. Recurring payments are called lifetime disability assistance payments (LDAPs). LDAP payments must begin by the end of the calendar year that the beneficiary turns 60.

When a withdrawal is taken and CDSB and CDSG have been received in the preceding 10 years, a portion of those bonds and grants may be repayable. Repayment may also apply if the beneficiary is no longer qualified for the DTC and takes a withdrawal while under age 60.

There is no repayment of grant or bond money if the beneficiary has turned 60, if the last bond and grant money was received more than 10 years ago, or if reduced life expectancy is five years or less.

When assistance is paid to the beneficiary – who does not have to be a Canadian resident at the time – each payment is a proportion of personal contributions, investment earnings, CDSB and CDSG. The beneficiary is taxed on the payment except for the portion that represents the return of personal contributions.

Disability needs planning using trusts

Aligning trust features with individual circumstances

Disability planning can be challenging to manage, even when focused on the health and medical issues alone. Extend that to navigating financial supports and tax benefits, and understandably it can feel overwhelming. Trusts1 can ease both the financial pressure and mental stress this can bring on, whether planning for oneself, a spouse2, a child, a sibling, or extended relations.

The table below highlights the type and features of trusts that can assist those with disabilities, with more detailed discussion in the following pages. In addition, for current tax and financial figures, please see the companion article Disability income support and tax benefits.3

 

 

1.    Personal trust principles

At its core, a trust separates legal ownership of property from beneficial ownership. The original property owner (the settlor) wishes to provide for someone (the beneficiary) who may be incapable of, or unsuitable to be managing property personally. By creating/settling the trust, the settlor chooses a person (the trustee) whom the settlor trusts in both the generic sense of confidence and in the formal position of having legal control.

For the disability trust types and features discussed below, the drafting must adhere to the appropriate regulation or administrative guidance. Even so, there can be trade-offs among these options, so legal advice is a must.

2.    Discretionary / ‘Henson’ trust

Provincial disability income support programs require that applicants provide initial and ongoing financial disclosure. The specifics vary by province, but generally these programs are intended as a safety net for vulnerable people who do not have, or have exhausted, personal resources in managing their lives. Thus, if an individual’s assets or annual income exceed prescribed figures, benefits may be reduced or eliminated altogether.

A discretionary trust can help shield against inclusion of some assets and income sources in this determination. This is sometimes called a ‘Henson’ trust, a reference to the 1980s Ontario case that ruled on the issue. Though technically only applicable to the Ontario program (now the Ontario Disability Support Plan, or ODSP), most provinces abide by similar principles, but with some variation so it is prudent to verify with provincial officials.

The defining (and really the only) feature is that the trustee has absolute discretion as to the amount and timing of trust distributions. As the beneficiary cannot compel payment, those assets will not be counted when determining eligibility or amount of support. Distributions to the beneficiary are subject to the program’s usual income rules.

Helpful as this can be, other factors aside from public support may influence when, how and even whether to use such a trust, depending on available assets and other income sources, and implications for access to tax benefits.

Ontario Inheritance trust

Up to $100,000 that is received as beneficiary of an estate or life insurance policy may be transferred into a non-discretionary trust. It is treated as income in the month received, but an exempt asset thereafter if transferred into trust within six months. Annual trust income does not affect ODSP if added to trust capital (up to the prescribed $100,000 level), but distributions to the beneficiary are subject to the program’s usual income rules.

Manitoba EIA trust

Manitoba has a “trust property exemption”, under its Employment and Income Assistance (EIA) Regulation. It allows up to $200,000 to be contributed to either/both an EIA trust and a registered disability savings plan (RDSP) without affecting support eligibility. Recent legislation passed in 2021 came in force in 2023, but the associated regulation did not come in force at the same time. Consult a Manitoba lawyer for current status.

RDSPs generally

A RDSP is not a personal trust, but as it was mentioned above in discussing Manitoba, it bears noting that all provinces exempt it as an asset. As well, distributions are treated as exempt income (partial in NB, PE and QC).

3.    Preferred beneficiary election (PBE)

The preferred beneficiary election (PBE) allows for tax on income earned in a trust (inter vivos or testamentary) to be allocated to certain beneficiaries, while the income itself remains in the trust. The trust must have one or more preferred beneficiaries, and may also have other non-preferred beneficiaries. A preferred beneficiary is a person:

    • Of any age who qualifies for the DTC, or
    • Who is 18 or older, and a dependant of another individual due to mental or physical impairment, and whose annual income (not including any allocation under the PBE) is no more than the maximum basic personal tax credit amount

In addition, the beneficiary must be one of the following:

    • Settlor of the trust
    • Spouse/CLP or former spouse/CLP, of the settlor
    • A child, grandchild, or great grandchild of the settlor, or
    • Spouse/CLP of a child, grandchild, or great grandchild of the settlor

The trust will pay no tax up to the basic personal exemption and can apply graduated bracket rates above that. Despite using the beneficiary’s credits and brackets, the election does not affect provincial disability income support.

Legal requirement for a joint election

To obtain this treatment, the preferred beneficiary and the trust must make an annual joint election that is filed with the trust’s T3 Tax Return. If the beneficiary is legally incapable of making the election, it may be made by the person’s attorney for property if one was appointed before the beneficiary was found to be incapable, failing which it will be necessary to commence a court application to appoint a guardian of property for the beneficiary.

4.    Qualified disability trust (QDT)

Since 2015, most testamentary trusts are taxed at the highest marginal tax rate in the province, as has long been the case for inter vivos trusts. However, if a testamentary trust has a ‘qualifying beneficiary’ (one who is eligible for the DTC), it may be able to use graduated tax brackets as a qualified disability trust (QDT).

Like the PBE, the trust and beneficiary must make an annual joint election, and if the beneficiary is incapable then an attorney or guardian for property may do so. Note that while a qualifying beneficiary can only make this election with one trust in a year, the trust may have other beneficiaries in addition to the qualifying beneficiary. Be aware that if a capital distribution is made to anyone other than the qualifying beneficiary, QDT status will be lost and the trust will be taxed at the highest bracket rate that year, with the added risk of reassessment of past years’ T3 returns.

There was initial concern when the QDT was introduced that use of the PBE may be limited thereafter, but either or both elections may be made in a year if the respective conditions of each provision are met.

5.    Lifetime benefit trust

A person’s assets are deemed disposed on death, including causing the value of registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) to be taxed in the deceased’s final year. This inclusion can be deferred to a spouse/CLP or financially dependent child/grandchild who is a plan beneficiary. However, if that person has a disability, concerns may arise as to how the money might be managed after receipt.

With this in mind, the RRSP/RRIF holder could instead direct the proceeds to a lifetime benefit trust (LBT), of which the intended recipient is the lifetime beneficiary. Preferably this will be done using a Will, so the trustee can be given detailed instructions, as needed. Whether designated on a plan or by Will, this is only available for mental infirmity, not for strictly physical conditions. On the other hand, the condition need not be so severe that the person qualifies for the DTC, though if the DTC is being claimed then that can bolster the assertion of mental infirmity.

There is no tax when the LBT receives the RRSP/RRIF. The trustee must use those funds to acquire a qualifying trust annuity (QTA), which will make periodic payments to the LBT. By default, the trust is taxed at top bracket, but the annual annuity income may be attributed to the beneficiary, to make optimal use of tax credits and graduated brackets. The trust then pays the beneficiary’s tax, and the net income remains under the trustee’s control.

The trustee must use the trust money for the comfort, care and maintenance of the beneficiary, who has a lifetime interest. This is to distinguish from any contingent beneficiary/ies the RRSP/RRIF holder has designated to receive any undistributed balance in the LBT and any commuted value of the QTA upon death of the lifetime beneficiary. This provides comfort and certainty that the remainder cannot be redirected by the lifetime beneficiary’s Will (or by intestacy in the absence of a Will), and that it will also bypass any probate tax.

Despite attribution to the lifetime beneficiary, the annuity payments to the LBT will not be considered the beneficiary’s own income, and so will not affect provincial disability income support. However, distributions from the LBT to the beneficiary may affect the amount of those benefits, subject to the program’s usual income rules.

6.    Home ownership trust

Apart from assuring sufficient financial support for living needs, top priorities for the parent of a disabled child are a caring social network and a stable home environment. Indeed, the two go hand-in-hand, with the parent being the main provider. But as a parent ages, this becomes increasingly difficult to handle, and there can be even greater uncertainty after the parent’s death, even with diligent planning.

For the range of reasons already outlined, it may not be practical or desirable for a disabled person to directly own the home they live in. Consider further that a parent with other children will likely want to share his/her estate among them, even if a larger share may be earmarked for the child with a disability. This presents an especially large obstacle when the home (or the money needed for its purchase) constitutes the bulk of the expected estate.

So, whether it’s an only child or one of many, a trust may be a prudent alternative for home ownership. It could be an inter vivos trust created while the parent is alive and continuing after death (see Alter ego and joint spousal/CLP trust below), or a property owned by the parent at death could pass through the Will to a testamentary trust.

Principal residence exemption (PRE)

Without getting into all the criteria for the PRE, it generally protects against taxation of capital gains on disposition of a residence that a person owns and ordinarily inhabits. This can include a trust owning a residence inhabited by a beneficiary, though the availability of the PRE to trusts has been significantly circumscribed since 2016, now limited to the following trusts:

    • A qualifying spousal/CLP trust, alter ego trust or joint spousal/CLP trust
    • An ‘orphan trust’, being for a minor child of a deceased parent, or
    • A qualified disability trust (QDT), but only if the trust was settled by a parent or spouse

If there are multiple beneficiaries of a QDT, and the trust claims the PRE on behalf of the DTC-qualified beneficiary in a year, this can affect future PRE claims of other beneficiaries on properties owned during overlapping years.

7.    Insurance proceeds trust

For a parent preparing for what will happen after their own death, insurance and/or segregated funds may be intended as a principal source to provide for a child (minor or adult) with disability needs.

Generally, beneficiaries may be designated by an insurer’s forms, or by making a written declaration, including by Will. The declaration must comply with, and explicitly refer to, the relevant provincial Insurance Act provision to assure that the policy/plan proceeds do not form part of the estate for creditor or probate purposes. (This should be verified with a local lawyer, particularly in Saskatchewan where some courts have held otherwise on certain facts.)

If the beneficiary is a minor or is otherwise unable to give legal consent, the proceeds must be paid to a trustee for the beneficiary. As with a direct designation, a trust designation may be made by way of the insurer’s forms or by written declaration, again including a Will. Either way, it will be considered a testamentary trust for tax purposes.

Insurers will generally only allow brief terms for trust designations, whereas a Will may contain as much detail as desired. As will be evident from the foregoing discussion, a clear identification of powers and rights is critical to be able to make use of desired trust types and features. To achieve this, a properly drafted Will is recommended.

8.    Alter ego trust and joint spousal/CLP trust

A person who is at least 65 can settle an alter ego trust of which he/she is the beneficiary, or joint spousal/CLP trust where both spouse/CLPs are beneficiaries. In the latter case, one or both may be settlors. Property is transferred into the trust tax-deferred at adjusted cost base (ACB), and future trust income is attributed to the settlor. Only the settlor or spouse may receive the income or capital of the trust while they are living, and contingent beneficiaries may be named to receive the remainder on death for an alter ego trust, or on 2nd death for joint spousal/CLP trust.

The main purpose of such trusts is as a Will alternative, as the contingent beneficiary designation allows for the bypass of any probate tax, and streamlines distribution outside of the formal estate. They may also be used with knowledge or anticipation of the settlor or spouse/CLP’s future disability or incapacity.

For parents of a disabled child, the contingent beneficiary designation may be part of the plan to provide for that child after the 2ndparent’s death. In deciding whether, when and how much to settle into such a trust, parents should be cognizant that this an inter vivos trust, so will not meet the requirements of a QDT which is required to be testamentary, but may qualify for the PBE.

9.    Qualifying spousal/CLP trust (inter vivos or testamentary)

Like an alter ego trust or joint spousal/CLP trust, property can roll into a qualifying spousal/CLP trust at ACB, but in this case the spouse/CLP is the only beneficiary. Only that spouse/CLP may obtain the income (though taxation may be attributed to the settlor) or capital of the trust during his/her lifetime, and contingent beneficiaries may be named to receive the remainder at death.

Though this type of trust can be created inter vivos (at any age), it is more commonly established in a deceased’s Will to create a testamentary trust that provides for a surviving spouse/CLP. The ACB rollover in this case defers the tax that would otherwise apply due to the deemed disposition on death. There are a range of reasons for creating such a trust rather than making an outright transfer to the spouse as an estate beneficiary (which may also be by ACB rollover). For example, this may be useful in a second marriage situation, allowing continued use of assets by a surviving spouse/CLP, with ultimate distribution of capital going to children of a first marriage.

When testamentary, this trust may be an effective tool to care for a disabled surviving spouse/CLP, and after that person’s death to be part of the support for a disabled child. For either of those beneficiaries, it can qualify for the QDT and PBE, and may also be able to serve as a house ownership trust, including the ability to claim the PRE.