by Chloe Cross, BA, PFP – Financial Planner, BMO Financial Group, Sidney –
Beginning a dedicated education savings plan while your children are still young helps ensure you have the funds necessary when they begin their post-secondary studies. While your RESP contributions are not tax deductible, the funds grow tax-deferred inside the plan and are eligible for additional contributions from the federal and provincial programs.
These additional educational grants are:
The Canada Education Savings Grant (CESG). Under the program, the Government of Canada pays a grant of 20% of annual contributions to a maximum of $500 per beneficiary ($1,000 in CESGs if there is unused grant room from a previous year) into the RESP. Over the life of the RESP, parents can contribute up to $50,000 per child, and each child qualifies for up to $7,200 in CESGs.
The Canada Learning Bond (CLB) is an additional grant that is paid into an RESP. A child is eligible for the CLB if they are from a low-income family which is based on the number of qualified children in the family; and adjusted income of the primary caregiver, including the income of a cohabiting spouse or common-law partner. It consists of an initial sum of $500 and for subsequent years, annual payments of $100 for up to 15 years for each year that the family is entitled to receive it.
Enhanced CESG. The 20% CESG may be increased to 30% on the first $500 contribution for families with less than approximately $97,069 of annual income and to 40% for families with less than approximately $48,535 of annual income (the annual income amounts are adjusted yearly based on the rate of inflation).
The BC Training & Education Savings Program (BCTESP) provides a $1,200 one-time grant to children born on or after January 1, 2007. This amount is paid into an RESP upon application between the child’s sixth and ninth birthday. At the time of the application, the beneficiary must be a resident of B.C.
When RESP funds are used to pay for education expenses, the accumulated income (including CESGs) is taxed in your child’s hands, resulting in little or no tax if withdrawn over a few years because of the basic personal exemption and the tuition tax credit. Your RESP contributions can be returned to you (or your child) tax-free at any time. However, a withdrawal of the RESP contributions will require repayment of the CESG if your child is not attending a qualifying post-secondary educational program.
Education planning should be an important component of your overall family wealth management plan. For more information please speak with a financial professional.
For more information, contact Chloe Cross at 250.655.2122 or email chloe.cross@bmo.com
