Over the years, I’ve had the privilege of supporting several clients who are living with disabilities, along with their families. I’ve seen firsthand how thoughtful planning can bring peace of mind, financial security, and confidence about the future.
For Canadians living with disabilities—and their families—navigating financial planning can feel complex. Fortunately, there are well-established tools available that can reduce taxes, support long-term savings, and preserve access to government benefits. Here are six essential strategies to consider:
1. Leverage the Disability Tax Credit (DTC)
The DTC is a valuable non-refundable credit designed to reduce the amount of income tax a person with a disability may owe. If they don’t need the full credit, the unused portion can often be transferred to a supporting relative—like a parent or spouse.
If a client missed claiming it in past years, they may still be able to request adjustments for up to 10 years—potentially unlocking thousands in refunds. For example, in Ontario, the combined federal and provincial tax savings for a child could be as high as $2,974 annually.
To qualify, a medical practitioner must certify a severe and prolonged impairment using CRA form T2201. If approved, the CRA confirms which years the credit applies to.
2. Maximize Savings with an RDSP
The Registered Disability Savings Plan (RDSP) helps people who qualify for the DTC save for the future with powerful government incentives. Contributions grow tax-free, and while they’re not tax-deductible, withdrawals are generally taxed only in the hands of the beneficiary—who often has a low or zero tax rate.
Importantly, RDSP assets and withdrawals are fully exempt from income and asset testing under most provincial disability benefit programs, including the Ontario Disability Support Program (ODSP), Alberta’s Assured Income for the Severely Handicapped (AISH), and British Columbia’s Persons with Disabilities (PWD) program.
Key features include:
- No annual contribution limit (lifetime cap: $200,000)
- Up to $3,500/year in matching grants (lifetime max: $70,000)
- Up to $1,000/year in bonds for low-income Canadians (lifetime max: $20,000)
- Carry-forward rules for unused entitlements going back 10 years
RDSPs remain one of the most underutilized and effective savings tools available to Canadians with disabilities.
3. Consider a Henson Trust for Estate Planning
A Henson Trust is one of the most powerful tools in disability planning. It allows funds to be held in trust for the beneficiary without impacting their access to provincial disability benefits.
Unlike other trust types, there is no limit to how much can be contributed to a properly structured Henson Trust. Because the beneficiary has no legal claim or control over the funds, the assets are not counted toward eligibility thresholds for programs like ODSP, AISH (Alberta), and PWD (British Columbia).
The trust can be set up during one’s lifetime or through a will, and additional beneficiaries can be named to receive remaining assets when the primary beneficiary passes.
4. Understand Tax-Efficient Trust Options
While most trusts are taxed at the highest rate, there are exceptions worth considering:
Qualified Disability Trust (QDT): Allows income to be taxed at graduated rates if the trust is created by a will and the beneficiary qualifies for the DTC.
Preferred Beneficiary Election (PBE): Lets income remain in the trust but be taxed in the hands of the beneficiary, potentially at a lower rate, and without necessarily affecting government benefits.
These tools can be used to complement a Henson Trust structure and reduce the overall tax burden.
5. Plan for Inherited RRSPs and RRIFs
With proper planning, an RRSP or RRIF left to a financially dependent child or grandchild with a disability can avoid a large tax bill on the deceased’s final return.
Options include rolling assets into the beneficiary’s own RRSP, RDSP, or using the funds to purchase a qualifying annuity. For those with a mental infirmity, a Lifetime Benefit Trust (LBT) may also be appropriate to preserve capital and meet tax requirements while protecting benefits.
6. Coordinate Contributions with Family and Caregivers
Well-intended gifts or inheritances can sometimes have unintended consequences. In most provinces, individuals receiving disability support may only receive limited direct gifts without impacting benefits—though larger amounts may still be permitted for housing, education, or disability-related expenses.
Coordinating contributions to an RDSP or through a Henson Trust ensures that family support remains aligned with long-term goals. Caregivers may also benefit from claiming transferred tax credits or deductions where appropriate.
Whether you’re navigating these considerations for yourself or someone you care for, the right strategies can make a meaningful difference. If you’d like help exploring your options, we are here to support you.
