The ability to save for your child's post-secondary education with a
registered education savings plan (RESP) is certainly not a new thing. The
biggest boost to the savings plan occurred in 1998, with the addition of the
Canada Education Savings Grant component. Recent changes will make RESPs more
attractive than ever.
The grant, which kicks in 20% on the first $2,000 of annual RESP
contributions for each child under the age of 18, was enhanced in 2005 for low-
and middle-income families. The first $500 contributed annually to an RESP
attracts a 40% grant if the family net income is less than $37,178. For families
with income between $37,178 and $74, 357, the grant is 30% on the first $500 of
annual RESP contributions.
For 2007 contributions, eligibility for the CESG is based on the family's
2005 reported income.
Last month's Quebec provincial budget introduced a similar enhancement to the
RESP grant program for Quebecers, with a refundable tax credit that will be paid
directly into the RESP itself.
The Quebec credit, which is in addition to the federal CESG, is equal to 10%
on the first $2,000 of annual RESP contributions for children under 18, up to a
lifetime maximum of $3,600.
Quebec will also provide enhanced credits of an additional 10% on the first
$500 contributed by low-income families, and an additional 5% on the first $500
contributed by middle-income families.
Peter Lewis, the chair of the RESP Dealers Association of Canada, which has
been lobbying for these grants, believes the provinces have a role to play in
encouraging families to save for their children's educations.
Although mildly amused by the timing of the Quebec government's announcement,
coming just one day before a provincial election call, Mr. Lewis is still
pleased with the proposal: "It's a major win for our association, but more
importantly, a major win for Quebec families."
Quebec's incentives for education savings follows in the footsteps of the
Alberta Centennial Education Savings Plan (ACES), which launched in 2005. Under
the plan, the Alberta government has pledged to contribute $500 to the RESP of
every child born to residents in 2005 and beyond. Grants of $100 are available
to children ages eight, 11 and 14, provided the children are attending school in
Alberta and parents have invested a minimum of $100 in an RESP.
RESPs could become more popular than ever if Liberal MP Dan McTeague has his
way. In May 2006, he introduced a private member's bill in the House of Commons
that would allow RESP contributions to be tax deductible.
The bill received second reading in November, and has been referred to the
Standing Committee on Finance, which began discussions on the bill last month.
Before opening up an RESP, take a look at the Ontario Securities Commission's
new RESP checklist at checkbeforeyouinvest.ca.
The checklist highlights key areas to review before investing in an RESP, and
cautions parents to investigate all options before committing to long-term
investments. - Jamie Golombek, CA, CPA, CFP, CLU, TEP is vice-president,
taxation and estate planning, at AIM Trimark Investments in Toronto.