|
|
|
 |
|
|
|
 |
|
• Tax sheltered savings
• Contributions pooled to earn higher returns on investments
• Funds invested only in gov’t guaranteed/insured vehicles
• Non-profit organization yields high ROI
• Plans are custom tailored to meet your needs and budget
• Maximum savings - $5,000 per year per
child ($50,000 lifetime)
• Gov’t grant - 20% of your contributions
up to $500/year per child
• Interest and CESG plus interest becomes Education Assistance Payment to
child
• If child does not go to post-secondary education, interest can be
rolled over to parents RRSP or taken out in cash
|
| |
A beneficiary of a registered education savings plan (RESP) is a person to whom, or on
whose behalf, a promoter agrees to make educational assistance payments.
The beneficiary has to qualify for the payments at the time they are made. Generally, a
subscriber is not restricted in choosing a beneficiary for an RESP. However, in a family
plan, each beneficiary must meet both of the following conditions:
- the beneficiary must be connected by blood relationship or adoption to each living
subscriber, or have been similarly connected to a deceased original subscriber; and
- The beneficiary must not have reached 21 years of age when he or she is named and
contributions are made in the plan for his or her benefits. In the case of a transfer from
one family plan to another, and if the beneficiary is 21 years of age or older, the
beneficiary must have been a beneficiary under the old plan.
What does blood relationship mean?
Under the Act, a blood relationship is that of a parent and child (or other descendant,
such as a grandchild or a great grandchild) or that of a brother and sister. Other
individuals might also qualify as related by blood in some circumstances - see question_
A).
QUESTIONS and ANSWERS
Is an adopted child related to his grandparents?
The definition of adoption includes both a legal adoption and an adoption in fact. Whether
an adoption in fact has occurred is determined based on the facts in each case. For
instance, an adoption is considered to have occurred if circumstances show that a child is
wholly dependent on, and in the custody and control of, the "adopting" parent.
In this situation, the child is connected by adoption to his parents.
Under the Act, there is a blood relationship connection can either have "blood
relationship" or "blood connection" between a parent and a child (or other
descendant, such as a grandchild or a great grandchild) or between a brother and a sister.
An individual's niece, nephew, aunt, uncle or cousin is not connected by blood to that
individual.
According to the Act, individuals connected by blood relationship, marriage or adoption is
related persons. Consequently, an adopted child is related to his grandparents since the
child is connected by adoption to his parents who are connected by blood relationship to
their parents. Similarly, the child of a spouse living in a long term common-law
relationship is the adopted child in fact of the other spouse if that spouse exercises
effective parental care and guidance on a continuing basis. The child will also be related
to both set of grandparents.
Can the beneficiary be changed or replaced?
Yes, as long as the terms of the plan allow it.
What happens if the beneficiary does not go to school?
If the beneficiary does not go to school and if another beneficiary is not named, the
property held under the trust can be used for any combination of the purposes outlined
under the definition of trust in the RESP section of the Act.
For example, the investment earnings could be paid, under specified conditions, in the
form of accumulated income payments to the subscriber(s) or to a designated educational
institution.
Other changes to the RESP rules may attract taxpayers who were dissuaded to set up RESPs
in case the intended beneficiaries (normally their children) never attended college or
university. The changes now allow contributors to take out the RESP income in certain
circumstances, such as where the plan has been running for at least 10 years and none of
the intended beneficiaries are pursuing higher education by age 21. In such case, the
contributor can withdraw the plan income. Although in addition to the regular income tax
payable on such withdrawal, there is a special 20% tax that applies (the extra tax is
meant to ensure than RESPs are not set up solely for the purposes of deferring tax).
However, the contributor will be allowed to transfer such RESP withdrawals to his or her
RRSP on a tax-deferred basis to avoid the penalty tax, to the extent of RRSP deduction
room available for the year of transfer. This RRSP rollover is subject to a lifetime total
of $50000
|
 |
| |
Contributions to registered education savings plans (RESPs) are not deductible from the
subscriber's income.
Annual contribution limits and lifetime limits depend on the calendar year. The annual
limit for 1997 and future years is $4,000. The lifetime limit for 1996 and future years is
$50,000. These limits apply to each beneficiary, regardless of the number of plans for
that particular beneficiary.
Do the contributions belong to the subscriber or to the beneficiary?
Control of the subscriber's contributions remains with the subscriber. However, this does
not prevent the payment of these amounts to the beneficiary by or on behalf of the
subscriber.
In the 1998 federal Budget, the government announced the new Canada Education Savings
Grant (CESG), for RESP contributions made after 1997. The CESG program is set out in more
detail in Part III.1 of the Department of Human Resources Development Act. Under the
program, the federal government provides CESG grants of up to 20% of annual contributions
made to RESPs for beneficiaries up to and including age 17, to a maximum grant of $500 per
year per beneficiary. The total lifetime CESG grant that will be paid into an RESP in
respect of an individual beneficiary is $7,200. The CESG grants made to an RESP do not
reduce the annual and lifetime dollar contribution limits described above. When the grants
are paid out of the plan to the beneficiary student, they are considered educational
assistance payments. The subscriber cannot withdraw the CESG grant under the plan. If the
beneficiary does not pursue higher education, the RESP is revoked, or if the RESP is
withdrawn for non-educational purposes, the RESP trustee is generally required to repay
the grant to the government.
An RESP must be wound up by the end of the 25th year following the year in which it is set
up. The subscriber allows contributions only for the first 21 years after the year in
which the plan is set up.
|
|
| |
An educational assistance payment (EAP) is a distribution to a beneficiary, under
certain conditions, of amounts in a registered education savings plan (RESP). These
amounts include the RESP's accumulated income, Canada Education Savings Grant (CESG), and
income on the grant. The EAP is to assist the individual to further his or her
post-secondary education.
For a payment to qualify as an EAP and at the time it is made, the individual has to:
- be enrolled full-time in a qualifying educational program at a post-secondary
educational institution (either in attendance at the institution or enrolled in distance
education courses); or
- For EAPs made after 1996, be enrolled as a student in a qualifying educational program
at a post-secondary educational institution, and have a mental or physical impairment that
prevents him or her from enrolling full time. The impairment has to be certified in
writing by a medical doctor, or a medical practitioner such as an optometrist,
audiologist, psychologist, or occupational therapist.
A promoter is not required to obtain receipts from a beneficiary as proof of expenses
before making an EAP. The promoter is required to obtain proof that the beneficiary is
enrolled in a qualifying educational program at a post-secondary educational institution.
The purpose of an EAP is to assist the beneficiary to further their education at a
post-secondary school level. If an EAP does not satisfy this requirement, the payment will
not be considered an EAP but rather an accumulated income payment (AIP) and would be taxed
accordingly. This means that the payment would be subject to the beneficiary's basic tax
rate plus the additional 20% AIP tax. Promoters may wish to remind subscribers and/or
beneficiaries of the consequences of an EAP being paid that is not to assist the
beneficiary to further their post-secondary education.
|
|
| |
An accumulated income payment (AIP) is any distribution from a registered
education savings plan (RESP), excluding a refund of payments, repayment of a Canada
Education Savings Grant (CESG),
an educational assistance payment (EAP), a payment to an educational institution, or a
transfer to another RESP.
AIPs usually include earnings on contributions made to the plan, and may include
earnings on the CESG. AIPs may be allowed, after 1997, if all the following conditions are
met:
- the recipient is a resident of Canada;
- the payment is made to, or on behalf of, a person and not jointly to, or on behalf of,
more than on person;
- the recipient is either:
- a subscriber of the plan at the time, or
- entitled to the payment because an individual died at any previous time and was a
subscriber under the plan immediately before his death.
- each beneficiary for whom contributions were made under the plan has
- reached 21 years of age and is not currently eligible to receive EAPs; or
- has died.
- and,
- the RESP has existed for at least 10 years, or
- each beneficiary for whom contributions were made into the plan has died and was related
to the subscriber (including nephew, niece, great nephew and great niece).
When AIPs are made from an RESP, the plan must be terminated by the end of February of
the year after the year in which the first payment is made. These payments are also
subject to two different taxes: the regular income tax and an additional 20% tax.
It is possible for some subscribers to reduce the payable tax by transferring their
AIPs to their RRSP or a spousal RRSP if they have accumulated enough contributions room.
This transfer is limited to $50000. |
|
| |
Transfers of property between registered education savings plans (RESPs) are generally
not restricted. The effective date of the plan where funds have been transferred, whether
it is a partial or total transfer, will be before:
- the effective date of the plan the funds came from; and
- the effective date of the plan the funds were transferred to.
The effective date is relevant in determining when contributions and transfers to an
RESP must end, when accumulated income payments can start and when the plan must be
terminated.
Transfers after 1996 can be made without resulting in any penalty tax in two cases:
- there is a common beneficiary under the transferring plan and the plan receiving the
transfer; or
- a beneficiary under the transferring plan is a sibling of a beneficiary under the
receiving plan, provided that the beneficiary under the receiving plan is under 21years of
age.
Can an RESP be transferred to a plan with a different subscriber but the same
beneficiary? For example, can a grandmother who has an RESP for her granddaughter transfer
this plan to her daughter's plan for the same child?
Yes. Transfer rules would permit such transfer. The rules also specify that if the
beneficiary under the receiving plan was, immediately before the transfer, a beneficiary
under the transferring plan, the contribution history would not apply to the receiving
plan for excess contributions purposes. |
|
| |
When does an RESP have to terminate?
An RESP must be terminated on or before the last day of the 25th year following the
year in which the plan was entered into.
What happens to the assets following termination of a plan?
The assets of an RESP can only be used for the following purposes:
- the payment of educational assistance payments;
- the payment after 1997 of accumulated income payments;
- the refund of Canadian Education Savings Grant to the Department of Human Resources;
- a payment to a designated educational institution;
- a transfer to another RESP.
|
|
|
|
|
|
|
|
|
|
|
