Registered Education Savings Plans (RESPs)

Question 1

RESP

Answer 1

A savings account that permits investment income to accumulate on a tax deferred basis.

Funds must be used to pay for post secondary education and related expenses

Question 2

Subscriber

Answer 2

One, or more individuals who contributes to the RESP

Question 3

RESP Beneficiaries

Answer 3

One, or more individuals who will eventually benefit by receiving payments to help with post-secondary education.

• Can be children, grandchildren, brothers, sisters, parents, nieces, nephews, the subscriber etc.

Question 4

Educational Assistance Payments (EAPs)

Answer 4

The amount paid to the beneficiaries (student) from an RESP to help finance the cost of the post-secondary education.

Reported on a T4A slip and is included in the students T1 as income for the year the student receives them

Question 5

EAP Payments

Answer 5

Provider can only pay EAPs to students if:

1) Student is enrolled full time in a qualifying educational program at a post-secondary educational institution, or

2) Student has attained the age of 16 years and is enrolled part-time in a specified educational program (lasts 2 consecutive weeks and requires student to spend 12 hrs. or more per month on courses in the program)

Note: Student is entitled to receive EAPs for up to 6 months after ceasing enrollment (payments must have qualified as EAPs if the payments had been made immediately before the student’s enrollment ceased).

Question 6

Qualified Educational Programs

Answer 6

Apprenticeships and programs offered by trade schools, CEGEP, college or university

Question 7

EAP Limits

Answer 7

1) For qualified educational program (full-time studies):
$ 5,000.00 for the first 13 consecutive weeks of full-time studies.
- After student has completed 13 consecutive weeks, no limit on the amount of EAPs that can be paid if the student continues to qualify for them.
- $ 5,000.00 maximum applies again if there is a 12-month period the student is not enrolled in a qualifying educational program for 13 consecutive weeks.

2) Specified education program (part-time studies):
$ 2,3005.00 for 13 consecutive weeks of enrollment in part-time studies in a specified education program preceding the payment of an EAP

Question 8

Subscriber to an RESP

Answer 8

No restrictions as to who can be the original subscriber.

Note: Relationship breakdown and death are two scenarios under which a new subscriber may replace an original subscriber

Question 9

RESP contribution limits

Answer 9

• For each beneficiary, there is no annual limit to all RESPs.
• For each beneficiary, the lifetime limit for contributions to all RESPs is $ 50,000.00

Question 10

Canada Education Savings Grant (CESG)

Answer 10

• Regardless of family income, HRSDC pays 20% of annual contributions made to all eligible RESPs for a qualifying beneficiary to a maximum of $ 500.00 of each beneficiary ($ 1,000.00 if there is unused grant room from a previous year).
• There is a lifetime limit of
  $ 7,200.00
• An additional CESG payment can be made to each qualifying beneficiary, based on net family income:

1) Extra 40% on first $ 500.00 if qualifying net income is
$ 50,197 or less

2) Extra 30% on first $ 500.00 if qualifying net income is
more than $ 50,197 but is less than $ 100,392

• RESPs for beneficiaries 16 and 17 years of age can only receive CESG if at least on of the following two conditions is met:

1) A minimum of $2,000 of contributions has been made to, and not withdrawn from, RESPs in respect of the before the year in which the beneficiary attains 16 years of age; or

2) A minimum of $100 of annual contributions has been made to, and not withdrawn from, RESPs at least any four years before the year in which the beneficiary attains 16 years of age.

• If the beneficiary does not pursue post-secondary education the CESG is returned to the government

Question 11

Single beneficiary (non-family)

Answer 11

• Only one beneficiary exists.
• The subscriber does not need to be related to the beneficiary (non restrictions as to who can be the beneficiary under the plan).
• Subscriber and beneficiary can be the same person.

Question 12

Family (multi-beneficiary) RESP

Answer 12

• Allows the subscriber to name more than one beneficiary.
• Subscriber cannot be beneficiary.
• Beneficiaries must be related by blood or adoption to each living subscriber or decease original subscriber
• Each beneficiary must be less than 21 years of age at the time they are named the beneficiary (can still be named beneficiary if family RESP is transferred to another, and they are over 21 years of age)

Question 13

Single beneficiary (non-family) RESP

Answer 13

• Only one beneficiary exists.
• The subscriber does not need to be related to the beneficiary (non restrictions as to who can be the beneficiary under the plan).
• Subscriber and beneficiary can be the same person.

Question 13

Family (multi-beneficiary) RESP

Answer 13

• Allows the subscriber to name more than one beneficiary.
• Subscriber cannot be beneficiary.
• Beneficiaries must be related by blood or adoption to each living subscriber or decease original subscriber
• Each beneficiary must be less than 21 years of age at the time they are named the beneficiary (can still be named beneficiary if family RESP is transferred to another, and they are over 21 years of age)

Question 13

Specified plan RESP

Answer 13

• A single beneficiary RESP (non-family) which the beneficiary is entitled to the disability tax credit in the tax year ending in the 32nd year of the RESP existence.
• Does not permit another individual to be designated as a beneficiary under the RESP at any time beginning in the 37th year of the existence of the plan
• No contributions (except transfers from another RESP) may be made to the plan at any time beginning in the 37th year of the existence of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the opening of the plan

Question 14

Maximum term for an RESP

Answer 14

• The maximum term for an RESP is 36 years
• RESP contributions and CESG (grant portion) accumulate within the RESP tax-free
• The growth portion of the RESP withdrawn will be taxed in the hands of the student (grant, bond, income, interest etc.)

Question 15

Taxability of RESP payments

Answer 15

• RESP contributions are paid tax-free to the beneficiaries
• Income earned on the contributions are paid to the beneficiaries as EAPs (EAPs, but not the contributions, are included as income in the beneficiaries income tax return for the year in which they receive them).

Question 16

RESP beneficiary does not attend post-secondary school

Answer 16

• Money can be withdrawn from RESP, even if CESG has been received for non-school purposes
• 20% of withdrawal will be held as a CESG repayment (Note: best not to withdraw as the RESP will be ineligible for CESGs for 3 years, and carry forward room cannot be accumulated)
• If no beneficiaries attend post-secondary school (and
  no replacement beneficiaries are named), all RESP contributions are returned to the subscriber, and all CESGs must be repaid.
• If an RESP is closed because the beneficiary has decided not to continue education after high school, the subscriber will have to pay taxes on the money the investment earned while it was in the RESP. The subscriber may be able to reduce the taxes owing by transferring the Accumulated Income Payment to a Registered Retirement Savings Plan.

Question 17

Transferring one RESP to another

Answer 17

Most transfers from one RESP to another RESP will have no tax issues, when the transferring RESP and the receiving RESP have the same beneficiary.

• There are no tax issues when a beneficiary under the transferring RESP has a brother or sister (under 21 years of age prior to the transfer) who is a beneficiary under the receiving RESP

Question 18

Rolling RESP into an RRSP

Answer 18

• Investment income can be paid to the subscriber in the form of an Accumulated Income Payment (AIP)—which can be rolled over to the subscriber’s RRSP, or to a spousal RRSP without penalty, as long as there is available contribution room.
• A lifetime limit of $50,000 AIP may be transferred to an RRSP.
• Conditions to receive an AIP are:
  1) The RESP must have existed for 10 years or longer.

2) All beneficiaries must be at least 21 years of age and not attending post secondary education

Question 19

Single beneficiary (non-family) RESP

Answer 19

• Only one beneficiary exists.
• The subscriber does not need to be related to the beneficiary (non restrictions as to who can be the beneficiary under the plan).
• Subscriber and beneficiary can be the same person.

Question 19

Family (multi-beneficiary) RESP

Answer 19

• Allows the subscriber to name more than one beneficiary.
• Subscriber cannot be beneficiary.
• Beneficiaries must be related by blood or adoption to each living subscriber or decease original subscriber
• Each beneficiary must be less than 21 years of age at the time they are named the beneficiary (can still be named beneficiary if family RESP is transferred to another, and they are over 21 years of age)

Question 19

Specified plan RESP

Answer 19

• A single beneficiary RESP (non-family) which the beneficiary is entitled to the disability tax credit in the tax year ending in the 32nd year of the RESP existence.
• Does not permit another individual to be designated as a beneficiary under the RESP at any time beginning in the 37th year of the existence of the plan
• No contributions (except transfers from another RESP) may be made to the plan at any time beginning in the 37th year of the existence of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the opening of the plan

Question 20

RESP is not rolled into an RRSP

Answer 20

• Where the accumulated income payment is not fully offset by RRSP deductions, there is a deferral tax of 20% over and above a subscriber’s ordinary marginal tax rate.
• This means for example, if the subscriber were in a 30% tax bracket, the accumulated income would be taxed at approximately 50% if it were taken as a payment