2023 Federal Budget – Registered Savings Plan and Employee Benefit Plan Roundup
March 30, 2023
Canada’s 2023 Budget proposes to increase RESP withdrawal limits and to make various changes that will make it easier for individuals to establish and maintain Registered Education Savings Plan (“RESP”) and Registered Disability Savings Plan (“RDSP”) for family members.
Budget 2023 also proposes approximately $13 billion over the next five years to implement the national dental-care program and introduces a new T4/T4A reporting requirement for private dental coverage.
Budget 2023 Increases RESP Withdrawal Limits
Currently, a student in full-time post-secondary education can withdraw a maximum of $5,000 in education assistance payments (“EAPs”) from their RESP during the first 13-week period of enrollment. EAPs include grants and investment earnings accumulated over the years; they do not include contributions. EAPs are taxable income for the student.
Budget 2023 proposes amending the Income Tax Act so that full-time students can withdraw up to $8,000 of EAPs during their first 13-week period. For part-time students, the withdrawal maximums will increase from $2,500 to $4,000 per 13-week period.
“In a typical year, nearly 500,000 students withdraw funds from an RESP to support their education,” the Budget stated. “However, the withdrawal limits for RESPs have not increased in 25 years.”
Budget 2023 also proposes allowing divorced and separated parents to open joint RESPs for their children, or to move existing joint RESPs to a different promoter. Currently, only married or common-law spouses can open or move joint RESPs. Divorced parents who opened a joint RESP while married can continue to maintain the plan, but cannot open a new plan with a different promoter.
The Statement and Impacts Report on Gender, Diversity and Quality of Life that accompanied Budget 2023 noted that these changes will directly benefit RESP beneficiaries, the average age of whom is 20. The group is broadly gender-balanced, though RESP withdrawals were slightly higher for men as of 2021. Interestingly, while beneficiaries have low incomes when they make withdrawals, they disproportionately come from higher-income families.
“Low- to middle-income families made up about 79 per cent of families in 2020 but represented only 41 per cent of all those who received RESP matching grants in 2021,” the Impacts Report stated.
Budget 2023 Extends and Expands RDSP Qualifying Family Member Provision
If an individual qualifies for the Disability Tax Credit, their parents and other relatives can help save for their long-term financial security through a Registered Disability Savings Plan (“RDSP”). However, if the individual reaches the age of majority and is not mentally capable of entering into a contract with the RDSP issuer, they cannot act as the RDSP plan holder. Instead, the individual’s guardian or legal representative must act as the plan holder.
Establishing guardianship or a legal representative can be an onerous process. In 2012, the federal government passed a temporary measure that permits an individual’s Qualifying Family Member (i.e., a parent, spouse or common-law partner) to function as the plan holder, as long as the individual does not have a legal representative. This measure is set to expire on December 31, 2023.
Budget 2023 extends the Qualifying Family Member provision until December 31, 2026. It also broadens the definition of Qualifying Family Member to include siblings who are 18 years or older.
Some provinces and territories have introduced measures that make it easier to establish a personal representative, making the Qualifying Family Member provision less necessary. The Supplementary Information on Tax Measures that accompanied Budget 2023 noted that the federal government encourages provinces and territories to “examine how they can better accommodate the needs of potential RDSP beneficiaries by developing appropriate, inclusive, and long-term solutions to address RDSP legal representation issues.”
RDSP beneficiaries living in rural communities will benefit the most from this change, according to the Statement and Impacts Report on Gender, Diversity and Quality of Life that accompanied Budget 2023.
$13 Billion Proposed to Fund Dental Care—Employers and Benefit Funds Required to Report Dental Coverage
In September 2022, the federal government announced the Canada Dental Benefit. The first phase of the program has provided up to $650 per year for children up to age 12 in families earning less than $90,000 annually. Applications opened in December and eligibility was retroactive to October 1, 2022.
Budget 2023 proposes $13 billion over the next five years and $4.4 billion annually thereafter to fully implement the program, which will provide dental coverage for uninsured Canadians with an annual family income of less than $90,000. There will be no co-pays for families with an income of less than $70,000.
The budget also proposes $250 million over three years, starting in 2025-2026, to be invested in targeted measures to reduce barriers to accessing dental care in vulnerable populations, including individuals in remote communities.
The government has also proposed legislation that will require “employers and employer pension plans” to report dental coverage offered to their employees and plan members through T4/T4A reporting. The budget documents state that this requirement will “ensure that the new Dental Care Plan is limited to Canadians with an unmet need for dental care who don’t have access to private insurance.” We expect the proposed reporting requirements will extend to Union-sponsored pension funds and ELHTs but that remains to be seen.
Other Measures of Note…
Budget 2023 also introduces new rules concerning securing Retirement Compensation Arrangements through letters of credit.
In addition, the Budget confirms some announcements made over the past year, including in connection with DC contribution errors and DB plan borrowing. Our prior post on the DC contribution error announcement can be found here and our prior post on DB plan borrowing can be found here.
Pension and Benefits