Income Taxation and Tax Planning

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					   Income Taxation and Tax
       Business 4099

K. Hartviksen
    Registered Education Savings
           Plans (RESPs)

o   Contributions to RSEPs are NOT tax deductible for the contributor.
o   There is a tax-deferral opportunity because the contributions
    accumulate tax-free within the plan.
o   On withdrawal, the payments will be taxable in the hands of the
    beneficiary, provided that the beneficiary is enrolled full-time in a
    qualifying educational program at a designated educational
o   Presumably, the beneficiary will be in a lower tax bracket than the
    contributor at the time of withdrawal….hence, withdrawals from the
    plan would be taxed at a lower rate.

     K. Hartviksen
    The Canada Education Savings
           Grant (CESG)
•   The federal government will make contributions
    to private RESPs to financially assist parents and
    guardians save for their child’s education.
•   CESG is equal to 20% of the first $2,000 in
    annual RESP contributions per child.
•   That amounts to a maximum federal contribution
    of $400 annually per child to a lifetime limit of
•   You can receive CESG grants up to December 31
    of the year the beneficiary turns 17.

     K. Hartviksen
     RESP - Contribution Limits
• Contribution Limits:
          o Maximum annual contribution per beneficiary =
          o Maximum lifetime RESP contribution per
             beneficiary = $42,000
•   A penalty tax of 1% per month is imposed on excess
•   Maximum period over which income generated in an
    RESP may be sheltered from tax is 26 years.
•   RESPs set up after February 20, 1990 may make
    payments only to individuals who are full-time students.

    K. Hartviksen
                     RESPs - Use
•   Usually established by parents or grandparents to assist in
    the financing of a child (or grandchild’s) post-secondary
•   If the beneficiary (child) does not continue education
    beyond high school, the accrued income in the RESP
    remains in the plan or is paid to a designated educational
    institution……the capital contributed to the RESP can be
    refunded to the parent (or grandparent) free of tax.

     K. Hartviksen
• There are two ways to invest in an RESP:
    enroll in an existing group plan (two or three
     major ones which advertise heavily in baby
     magazines and pediatrician’s offices) or,
    set up an individual (self-directed) plan, in
     which case you have control over the
     investment of funds as well as choosing the
     beneficiaries of the plan
    Where Can you Open an RESP
•   Almost any financial institution
•   As well as other specialized organizations such
        Canadian Scholarship Trust (CST)
        200-240 Duncan Mill Road
        Don Mills, Ontario
        M3B 3P1
        1 - 800 - 387-4622

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