RESPs Flashcards
What is an RESP?
An educational savings program registered with CRA to help with saving for a child’s post secondary education.
What are the key roles involved in an RESP?
A subscriber - person who opens and makes contributions to the RESP
A promoter - the company that sells the plan to the subscriber
A beneficiary - the person who is intended to derive benefit from the RESP
What are the types of RESP plans?
Non family plan
Specified plan
Family plan
Group plan
What is a non family RESP plan?
A non family RESP plan is a plan that has only one beneficiary or a single beneficiary and there are no restrictions on who can be the beneficiary under the plan so beneficiary and subscriber do not have to be related.
What is a specified plan?
A specified plan is a plan with a single beneficiary under which the beneficiary is entitled to DTC (disability tax credit).
What is a family RESP plan?
A family plan involves more than one beneficiary where each beneficiary is related by blood or adoption or is a dependent of each living subscriber under the plan or the deceased original subscriber.
What is a group RESP plan?
A group plan is available through a non taxable entity such. As a foundation and administered on an age group basis.
Can a trust/estate or a corporation be a subscriber of an RESP?
No. Only an individual.
Can a divorced couple enter into an RESP as joint subscribers?
No, unless they were already subscribers before they got divorced.
Can a non family plan have the same person as a subscriber and a beneficiary on the plan?
Yes.
Is there an annual limit on an RESP?
No, only a lifetime maximum contribution limit
If there is an over contribution to an RESP, what is the penalty?
1% per month on the share of over contribution
Are RESP contributions tax deductible?
No so the amounts can be withdrawn tax free but accompanying grants must be repaid.
When can contributions to a non family plan not be made?
After the 31st year of the plan’s existence.
When can contributions to a specified plan no longer be made?
After the end of the year that includes the 35th anniversary year.
Up to what age can contributions to a family RESP plan be made?
31 years of age.
Contributions can only be made to a family plan for beneficiaries who are under 31 at time of contribution.
What are the types of payments made from an RESP?
Payment of contributions to a subscriber or beneficiary
Educational Assistance Payments (EAPs)
Accumulated Income Payments (AIPs)
Payments to a designated educational institution in Canada
Are payment of contributions of an RESP to a subscriber taxable?
No
What is an educational assistance payment?
An EAP is money comprised of accumulated income in the RESP, CESG (Canada Education Savings Grant) and CLB (Canada learning bond) made to an RESP beneficiary to help finance post secondary school.
What are the conditions for an EAP payment to be made to an RESP beneficiary?
Beneficiary must:
- Be enrolled in a full time qualifying educational institution (campus or distance education)
- Be 16 years and enrolled in a specified program at post secondary level that lasts at least 3 consecutive weeks requires student to spend not fewer than 12 hours per month on courses in the program
What is the maximum amount of EAPs that can be made to a student as soon as they qualify?
For full time studies:
$5000 for the first 13 consecutive weeks of full time studies in a qualifying educational program. After that, no limit on the amount
For part time studies:
$2500 for the 13 week period of enrolment in part time studies.
What is a qualifying educational program?
One that requires a student to spend 10 hours or more per week on courses or work in the program and lasts at least 3 consecutive weeks.
Is the student allowed to earn income from part time or temporary employment while receiving EAP?
Yes, as long as the employment is not connected to the program of study. If it is, then it will not be considered a qualifying program.
Can an EAP be made to a student’s estate if he or she passed away?
No.
Is an EAP taxable to the receiving beneficiary?
Yes but the tax consequences are low because the recipient is usually in a low income tax bracket
Can a subscriber continue to make contributions to an RESP even after a beneficiary begins receiving EAPs?
Yes, provided the timing does not exceed the maximum period during which contributions can be made.
What is an accumulated income payment (AIP)?
An AIP is an amount of income earned from the RESP that is paid out of the plan to the subscriber.
It includes earnings on contributions into a plan and earnings on the CESG.
What does an AIP not include?
A refund of contributions to the subscriber or beneficiary
EAPs
Payments to a designated educational institution in Canada
Transfer to another RESP
Repayments of CESG or any other provincial program
Who can receive AIP?
A subscriber who is a resident in Canada
Only one subscriber of an RESP
What are the three conditions that must apply for an AIP to be made to a subscriber?
- Payment is made after the year that includes the 9th anniversary of the RESP and each beneficiary is 21 years old and not eligible to receive EAP
- Payment is made after the 35th anniversary unless RESP is a specified plan then it is 40th anniversary
- All beneficiaries are deceased
When must an RESP be terminated by when the first AIP is paid?
By the end of February of the year after the year the first AIP is paid.
How is an AIP taxed?
It is reported on a T4A slip.
It is taxed as regular income and there’s an additional 20% tax.
How can one reduce the amount of tax payable on an AIP?
By making contributions to an RRSP. Maximum amount that can be contributed is $50,000.
Individual claims the deduction after the RRSP contribution which lowers income and reduces taxes.
There is usually a withholding tax if an AIP is paid. But what are the exceptions when no withholding tax will not apply?
When the AIP is transferred directly into a regular, spousal or common law RRSP
when the contributor has sufficient contribution room for RRSP to allow deduction of contribution in the year it is made.
Can an individual reduce the AIPs subject to tax if they become a subscriber because of the death of an original subscriber?
No.
If an individual does not have sufficient contribution RRSP room, what other option is there for them to avoid the loss of the opportunity if they are married or in a common law relationship?
They can restructure the RESP to a joint subscriber plan and if the subscriber’s spouse has adequate RRSP room? They can contribute to their RRSP.
When can no more contributions be made to an RESP regular and specified?
For a regular RRSP: after the end of the 31st year of opening the plan
For a specified RRSP: after the end of the year that includes the 35th anniversary of the plan.
When is both a regular and specified RESP to be completed?
Regular RESP: end of the 35th year
Specified RESP: end of the 40th year
Assets from a collapsing RESP can be transferred or used to fund what?
Another RESP
Used to fund an EAP
Refund CESG
Used to make an AIP
Used to make a payment to a designated educational institution
What is a CESG?
A CESG is a grant paid by ESDC (Employment and Social Development Canada) to the RESP for a specific beneficiary.
It’s basically a bonus payment from the federal government designed to help Canadians save for a child’s post secondary education.
How is a CESG paid? What is the amount?
Basic CESG is 20% of the first $2500 paid until age 17 up to a maximum of $500 for each child.
$1000 max if there is unused grant room from previous year
What is the CESG lifetime maximum limit?
$7200 for each child.
What is the additional CESG amount?
If family net income is below a threshold, then an enhanced CESG is paid - up to 40% match on the first $500
May be:
Up to $100 if income = $49,020
Up to $50 if income $49,020 < x = $98,040
$0 if income > $98,040
What is the lifetime maximum contribution limit of an RESP?
$50,000 for each beneficiary.
How long is the CESG available for if the lifetime limit of $7200 has not been exceeded?
Age 17 for the child.
How is the Canada Learning Bond paid?
Canada Learning Bond (CLB) provides an initial $500 payment to low income families entitled to the National Child Benefit Supplement (NCBS) for each child
Followed by 15 annual $100 payments for each year the family is entitled to the NCBS supplement for the child up to &2000
Do contributions have to be made to an RESP to receive the CLB?
No
