Income Taxation and Tax Planning

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Income Taxation and Tax Planning

• RESPs
• Business 4099

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K. Hartviksen
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Registered Education Savings Plans (RESPs)

• Contributions to RSEPs are NOT tax deductible for
  the contributor.
• There is a tax-deferral opportunity because the
  contributions accumulate tax-free within the
  plan.
• 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
  institution.
• 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.

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K. Hartviksen
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The Canada Education Savings Grant (CESG)

• The federal government will make contributions to
  private RESPs to financially assist parents and
  guardians save for their childs 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
  7,200.
• You can receive CESG grants up to December 31 of
  the year the beneficiary turns 17.

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K. Hartviksen
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RESP - Contribution Limits

• Contribution Limits
• Maximum annual contribution per beneficiary
  4,000
• Maximum lifetime RESP contribution per
  beneficiary 42,000
• A penalty tax of 1 per month is imposed on
  excess contributions.
• 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.

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K. Hartviksen
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RESPs - Use

• Usually established by parents or grandparents to
  assist in the financing of a child (or
  grandchilds) post-secondary education.
• 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 institutionthe capital
  contributed to the RESP can be refunded to the
  parent (or grandparent) free of tax.

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K. Hartviksen
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RESPs

• 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 pediatricians 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

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Where Can you Open an RESP

• Almost any financial institution
• As well as other specialized organizations such
  as
• Canadian Scholarship Trust (CST)
• 200-240 Duncan Mill Road
• Don Mills, Ontario
• M3B 3P1
• CANADA
• 1 - 800 - 387-4622