RESP (Registered Education Savings Plan)
One of the most important lessons of your children's education is one that you have to learn - and the sooner you do, the better. Post-secondary education will make a big difference to your children's earning potential and standard of living. However, government funding to universities is dropping, and post-secondary institutions are making up the shortfall by raising student fees. Unless you start setting aside education funds for them now, your children face the possibility of crippling debt upon graduation or, even worse, the lost opportunity to attend college or university.
The most important thing to remember is that the concept of an RESP is halal. The difference is that you have to insure that the investments used inside an RESP meet the Islamic Criteria. If they contain fixed income investments that are guaranteed like government bonds, etc. like most education savings plans promoted by foundation or trusts do, they contain RIBA and are thus, HARAM. Make sure investments meet ISLAMIC CRITERIA before opening an account for your RESP, RRSP, or just a regular open investment account. Contact NO INTEREST Investments and Jeff (Jaafer) Gareau, who has specialized in Shariah-Compliant Financial advice since 1995, before making any decisions. If you would like to open an RESP account, e-mail us at info@nointerest.ca
General RESP Questions What are the maximum annual and lifetime contributions allowed for an RESP? This is not intended to be an exhaustive source of information; just a general guide. More information can be obtained on the web at CRA's website or you can contact us at NO INTEREST Investments so you can benefit from over 25 years of experience in North American and International investing and tax planning.
The government has eliminated the annual maximum RESP Contribution Limit. However, it really makes little sense to contribute more than $2,500 per year per child as the maximum grant is still $500 per year (slightly higher for those who have a lower family income). Thus, after $2500, one is not receiving additional grant so you are better off opening an in-trust account or a Tax-Free Savings Account for any amounts over $2,500 per year. Contact us for details in deciding which is the best for you.
Can I use in-trust funds to open an RESP?
Individuals considering the closure of a trust or withdrawal of trust funds for the purpose of re-contributing these assets into an RESP are strongly advised to contact their Canada Customs and Revenue Agency Tax Services Office to discuss the tax implications of this transaction.
Can funds in an RRSP or RRIF be transferred into an RESP?
The Income Tax Act does not permit the direct transfer of funds from either an RRSP or a RRIF to an RESP.
Is it necessary to open an RESP now to earn CESG contribution room?
Ever since RESP's were introduced in 1998, each child who is a resident of Canada began to accumulate grant contribution room regardless of whether or not the child is a beneficiary under an RESP. For example, if a child is born in 1998 but no RESP is opened for the child until the year 2001, the child will have accumulated a total of $8,000 ($2,000/yr x 4) in grant contribution room by the year 2001. Since 2007, when the maximum grant was increased, the maximum grant that can be received in any year is $1000 (slightly higher for those with low family incomes). An illustration of this is that if you are opening an RESP for a child for the first time, you can contribute $5000 this current year with $500 grant being attracted on the $2500 apportioned to the current year and also $500 grant retroactively for the previous year. This can also be done in future years so that you can retroactively contribute for previously missed years back to the DOB year of the child or when they became resident in Canada. Please duly note that one can only go back one year at a time in a given year. One cannot contribute more than $5,000 in a given year and attract more than one year of retroactive grant. i.e. some clients will want to do $20,000 to get grant for 8 years of grants but it is limited to 1 year only.
Is it possible to have a joint RESP account?
Yes, spouses and/or common-law partners are permitted to be joint subscribers under an RESP. However, some RESP contracts may not permit joint subscribers.
Can a subscriber stop making contributions and resume at a later date?
In general, legislation governing RESPs and the CESG does not require any particular pattern of contributions. However, specific RESP contracts may have such rules.
How many years can contributions be made to an RESP, and how long can income remain sheltered in the plan? Does this depend on the age of the beneficiary?
In the case of a non-family plan, contributions can be made up to and including the 22nd year of the plan's existence. The family plan is a little more restrictive in that contributions must stop in the year on the beneficiary's 21st birthday. Both types of plans must be terminated no later than the 35th year. Depending on the type of plan, the age of the beneficiary is relevant.
Can a subscriber transfer from one RESP to another RESP?
Subject to the terms of the plan, partial or full transfers are permitted under the Income Tax Act. The transfer of an amount from an RESP to another RESP is considered eligible for CESG purposes if there is a common beneficiary between the originating plan and the receiving plan; or a beneficiary under the receiving plan is under 21 years of age, and is a brother or sister of a beneficiary under the originating plan. Otherwise, the CESG must be repaid and an over-contribution tax may apply.