Counsel Portfolio Service’s
Registered Education Savings Plan
(RESP )
FOR ADVISOR USE ONLY
University tuition*
1988:
$1,100
2013:
$7,000
2023:
$?
4 year program today:
• $40,000?
• $60,000?
• $80,000?
*Approximate. $6,882 UWO tuition 2012-2013
FOR ADVISOR USE ONLY
Why a Counsel RESP?
• RESPs are a financial planning ‘must’ for most families
• For clients with other Counsel accounts, consistency of
investment approach
– Counsel investment philosophy and process extended to RESP
investments
• Detailed reporting through the Quarterly Portfolio Review
• No account or trustee fee
FOR ADVISOR USE ONLY
What is an RESP?
A Registered Education Savings Plan (RESP) is an account used
to save for post-secondary education
Basic Structure:
• The subscriber (makes the contributions)
• The promoter (Counsel; administers the RESP )
• The beneficiary (the person who attends a post-secondary program)
Benefits :
• Contributions to the plan grow on a tax-deferred basis
• Provides access to various government grants
• Withdrawals of investment income and grants are usually taxed in
beneficiary’s hands (typically in a low tax bracket)
FOR ADVISOR USE ONLY
How Does an RESP Work?
Subscriber enters into an RESP contract with the promoter and
names one or more beneficiaries under the plan
1.
Government grants (if applicable)
Subscriber
makes
contributio
ns to the
RESP.
Canada
Education
Savings Grant
(CESG) is paid
to the RESP.
Canada
Learning Bond
(CLB) is paid to
the RESP.
Any designated
provincial
education
saving program
that is paid to
the RESP.
The promoter of the RESP administers all amounts paid into the
RESP. As long as the income stays in the RESP, it is not taxable.
The promoter also makes sure payments from the RESP are made
according to the terms of the RESP.
The promoter can
return the
subscriber’s
contributions taxfree.
The promoter can
make payments to
the beneficiary to
help finance his or
her post-secondary
education.
Source: Canada Revenue Agency
FOR ADVISOR USE ONLY
The promoter can
make accumulated
income payments.
How Does an RESP Work?
Subscriber enters into an RESP contract with the promoter and
names one or more beneficiaries under the plan
Government grants (if applicable)
2.
Subscriber
makes
contributio
ns to the
RESP.
Canada
Education
Savings Grant
(CESG) is paid
to the RESP.
Canada
Learning Bond
(CLB) is paid to
the RESP.
Any designated
provincial
education
saving program
that is paid to
the RESP.
The promoter of the RESP administers all amounts paid into the
RESP. As long as the income stays in the RESP, it is not taxable.
The promoter also makes sure payments from the RESP are made
according to the terms of the RESP.
The promoter can
return the
subscriber’s
contributions taxfree.
The promoter can
make payments to
the beneficiary to
help finance his or
her post-secondary
education.
Source: Canada Revenue Agency
FOR ADVISOR USE ONLY
The promoter can
make accumulated
income payments.
How Does an RESP Work?
Subscriber enters into an RESP contract with the promoter and
names one or more beneficiaries under the plan
Government grants (if applicable)
3.
Subscriber
makes
contributio
ns to the
RESP.
Canada
Education
Savings Grant
(CESG) is paid
to the RESP.
Canada
Learning Bond
(CLB) is paid to
the RESP.
Any designated
provincial
education
saving program
that is paid to
the RESP.
The promoter of the RESP administers all amounts paid into the
RESP. As long as the income stays in the RESP, it is not taxable.
The promoter also makes sure payments from the RESP are made
according to the terms of the RESP.
The promoter can
return the
subscriber’s
contributions taxfree.
The promoter can
make payments to
the beneficiary to
help finance his or
her post-secondary
education.
Source: Canada Revenue Agency
FOR ADVISOR USE ONLY
The promoter can
make accumulated
income payments.
How Does an RESP Work?
Subscriber enters into an RESP contract with the promoter and
names one or more beneficiaries under the plan
Government grants (if applicable)
Subscriber
makes
contributio
ns to the
RESP.
4.
Canada
Education
Savings Grant
(CESG) is paid
to the RESP.
Canada
Learning Bond
(CLB) is paid to
the RESP.
Any designated
provincial
education
saving program
that is paid to
the RESP.
The promoter of the RESP administers all amounts paid into the
RESP. As long as the income stays in the RESP, it is not taxable.
The promoter also makes sure payments from the RESP are made
according to the terms of the RESP.
The promoter can
return the
subscriber’s
contributions taxfree.
The promoter can
make payments to
the beneficiary to
help finance his or
her post-secondary
education.
Source: Canada Revenue Agency
FOR ADVISOR USE ONLY
The promoter can
make accumulated
income payments.
How Does an RESP Work?
Subscriber enters into an RESP contract with the promoter and
names one or more beneficiaries under the plan
Government grants (if applicable)
Subscriber
makes
contributio
ns to the
RESP.
Canada
Education
Savings Grant
(CESG) is paid
to the RESP.
Canada
Learning Bond
(CLB) is paid to
the RESP.
Any designated
provincial
education
saving program
that is paid to
the RESP.
The promoter of the RESP administers all amounts paid into the
RESP. As long as the income stays in the RESP, it is not taxable.
The promoter also makes sure payments from the RESP are made
according to the terms of the RESP.
5.
The promoter can
return the
subscriber’s
contributions taxfree.
The promoter can
make payments to
the beneficiary to
help finance his or
her post-secondary
education.
Source: Canada Revenue Agency
FOR ADVISOR USE ONLY
The promoter can
make accumulated
income payments.
Basic Beneficiary Requirements:
Must:
• Have a valid Social Insurance Number (SIN)
• Be a resident of Canada when designated as
beneficiary
• For Family Plan Only: be under age 21 when named
a beneficiary
FOR ADVISOR USE ONLY
Contributions
• Contributions made by a subscriber are called “the
capital portion”
– Not tax deductible from the subscriber’s income
– Interest paid on money borrowed to contribute to an RESP
cannot be deducted from income
– Only qualified investments can be purchased
• Two types of contributions:
• Assisted – these receive government grants/bonds
• Unassisted – these do not attract government grants/bonds
• There are no annual contribution limits
• The lifetime limit is $50,000
FOR ADVISOR USE ONLY
RESP Grants and Bonds
• There is one type of grant available:
– Canada Education Savings Grants (CESG)
• There is one type of bond available:
– Canada Learning Bond (CLB)
FOR ADVISOR USE ONLY
CESGs
• An incentive provided by Employment and Skills Development
Canada (ESDC )
• Equal to 20% of annual contributions made to all eligible
RESPs to a maximum of $500 for each beneficiary per year*
• Lifetime limit of $7,200
• ESDC will pay “Additional CESG” for each qualifying
beneficiary based on the subscriber’s net (family) income:
– Additional 20% on the first $500 contributed if household
income is less than or equal to $41,544
• $600/yr.
– An extra 10% on the first $500 if household income is
between $41,544 and $83,008
• $550/yr.
* Where unused CESG room is ‘carried forward’, $1,000 per year may be earned.
FOR ADVISOR USE ONLY
CESG Rules and Eligibility
• Beneficiaries may qualify for CESGs up to the end of
the calendar year they turn 17 years of age
• Beneficiaries who are 16 or 17 years of age can
receive CESGs if:
– A minimum of $2,000 in contributions have been made and
not withdrawn before the year the beneficiary turns 16 years
of age
Or,
– A minimum of $100/year has been contributed and not
withdrawn in any of the 4 years before the beneficiary turns
16 years of age
– Beneficiary must be a resident of Canada when contributions
were made
FOR ADVISOR USE ONLY
Canada Learning Bond
• An incentive provided by ESDC
• For beneficiaries born after Jan. 1, 2004
• Family must receive the National Child Benefit
Supplement each year to qualify
• Maximum benefit is $525 initially, and $100/yr. until
the beneficiary turns 15 years of age
• If the beneficiary does not go on to post-secondary
education, the CLB must be repaid
FOR ADVISOR USE ONLY
Family Plans
• Beneficiary must be related (by blood or adoption) to
subscriber
• New beneficiaries can be added any time (without
limit)
• Money in the plan is ‘communal’
– Any child under the plan can use any part of the funds for
educational purposes
• For non-siblings, they must be related to the
subscriber (not to each other)
FOR ADVISOR USE ONLY
Individual Plans
•
•
•
Only one beneficiary
Beneficiary cannot be changed
– but the account can be transferred to a new
individual account
No restriction on age of beneficiary,
– but if beneficiary is over 17 years of age, they will
not be eligible for the CESG
FOR ADVISOR USE ONLY
RESP Strategies to Consider
1. The ‘Front-Loader’
•
•
•
•
•
•
•
Affluent clients
$50,000 maximum invested immediately
Only attracts $500 CESG
Maximizes tax-deferred compound growth
Depending on rate of return, can maximize RESP value
Can be volatile depending on investment choices
No dollar cost averaging opportunities
FOR ADVISOR USE ONLY
RESP Strategies to Consider
2. The ‘Mini Front-Loader + CESG Maximizer’
• Affluent/moderately affluent clients
• $16,000 invested immediately
• Becomes affordable after year 1; can PAC remaining
$34,000
• $2,500 per year attracts max. $500 CESG/yr
• Attracts full $7,200 CESG lifetime maximum
• Maximizes tax-deferred compound growth on initial
deposit
• Depending on rate of return, can maximize RESP value
FOR ADVISOR USE ONLY
RESP Strategies to Consider
3. The ‘Goal-Specific’
• Work backwards from a goal
– e.g. set a total goal: Pay for $6,000 per yr x 4 yrs. = $24,000
and attract the most CESG possible
– How much “CESG-eligible” contribution is needed?
•
•
•
•
Divide goal by 1.2 = $20,000
Possible option: $2,500/yr. x 8 yrs.*
$4,000 CESG earned
The client ‘partners’ with ESDC to hit their goal
* Subject to special contribution rules for ages 16-17. Investment return may result in more or
less than $24 K depending on how invested.
FOR ADVISOR USE ONLY
RESP Strategies to Consider
4. The ‘Late Bloomer’
•
•
•
•
“Catch up” to earn CESG
Clients may be starting late
Can still catch up on missed CESGs from prior years
Contributions can earn up to $1,000 CESG per year
(on $5,000 contribution)
– CESG missed between 1998-2006 = $400/yr.
(20% of $2,000 limit)
– From 2007 on = $500/yr. (20% of $2.500 limit)
FOR ADVISOR USE ONLY
Withdrawals from an RESP
Two reasons that RESPs can be withdrawn from:
1. For educational purposes
– Educational Assistance Payment (EAP) or
– Post Secondary Education (PSE) withdrawal
2. For non-educational purposes
– Accumulated Income Payments (AIPs)
Note: For either, subscriber contributions can be withdrawn at
anytime. This is called a capital withdrawal
FOR ADVISOR USE ONLY
RESP Withdrawals for Educational Purposes
EAP (Educational
Assistance Payments)
PSE (Post Secondary
Education)
What is it?
Withdrawal from:
• The investment growth
• Government grants
Withdrawal from the
contribution amount
Taxable
• To beneficiary
• Reported as income
Tax free
Limit on withdrawal? Yes
FOR ADVISOR USE ONLY
No limit
EAP Withdrawal Limits
Qualifying
Educational
Program
At least 3 consecutive weeks
long, 10+ hours/week
First 13 consecutive weeks - $5,000
max. (after first 13 consecutive weeks
no limit)
Specified
Educational
Program
At least 3 consecutive weeks
long, 12+ hours/month
First 13-week semester - $2,500 max.
• No withholding taxes on EAP redemptions
• Beneficiary cannot be enrolled in an educational
program as part of their employment
• Beneficiary must be a resident of Canada
FOR ADVISOR USE ONLY
Qualification Criteria for a PSE
• PSEs are intended only for educational expenses
• PSEs can only be withdrawn if the beneficiary is a:
– Full time student enrolled in a qualifying
educational program
– Or part time student enrolled in a specified
educational program
• PSEs have the same taxable implications as regular
capital withdrawals (no claw-back implications)
FOR ADVISOR USE ONLY
Beneficiary Attends Post-secondary Education
taxed
To Beneficiary(ies) (for educational purposes only)
Growth on grants/bonds
Not taxed
Growth on client contributions
EAP
Grants/bonds
Client contributions
PSE
To Subscriber (for educational purposes only)
FOR ADVISOR USE ONLY
What Happens if the Beneficiary Does Not
Attend Post-secondary Education?
• Capital Redemptions:
– Tax-free payment to subscriber from the contribution portion
of the RESP
– This will trigger a claw-back of grants/bonds paid to RESP
• CESG claw-backs:
– CESGs can be shared with a sibling, provided that the sibling
has contribution room, otherwise, all grant money must be
repaid to ESDC
FOR ADVISOR USE ONLY
What Happens if the Beneficiary Does Not
Attend Post-secondary Education?
• Accumulated Income Payment (AIP):
– A withdrawal of earnings by the subscriber that is not
intended for educational expenses
• Subscriber can roll over the earnings to an RRSP provided there is
contribution room. The maximum rollover allowed is $50,000
• Or, subject to taxes = nominal rate + 20% of withdrawal amount. A T4A
is issued to the subscriber
– Only allowed when the following conditions are met:
•
•
•
•
The subscriber is a resident of Canada
The payment is made to one subscriber of the plan (no joint payments)
The plan has been open for 10 years
Each individual beneficiary is over 21 years of age or
– the plan is being closed after 35 years, or
– all beneficiaries are deceased
FOR ADVISOR USE ONLY
Beneficiary Does not Attend Post-secondary
Education
To client’s/spouse’s
RRSP
To client (non RRSP). Taxable, plus 20% penalty tax
Growth on grants/bonds
AIP
To government
Growth on client contributions
Grants/bonds
Client contributions
To client
FOR ADVISOR USE ONLY
Set Up and Features
• Account set up:
– Counsel Application Forms – Family or Individual
– ESDC Grant/Bond Application Forms
• Purchases:
– Placed through FundSERV or as direct orders
• Automatic programs available:
– PACs (Pre-authorized chequing)
– DRIPs (Dividend Reinvestment Program)
– STEPs (Systematic Transfer and Exchange
Program)
FOR ADVISOR USE ONLY
Account Administration
• Account maintenance:
– Updates (e.g. beneficiary information, subscriber
information, contribution allocation percentages by
beneficiary and investment instructions on grant/
bond proceeds) must be submitted via a letter of
direction
• Transfers-in:
– A ‘standard’ RESP Transfer Form is used
– Counsel Advisor Zone
FOR ADVISOR USE ONLY
Statements & Confirms
• Statements
– New RESP section to be included
– This section describes beneficiary information,
contributions, grant and bond breakdown, and
grant withdrawal amounts
• Counsel Quarterly Portfolio Review
– RESP accounts and details included
• Transaction Confirmations
– Generated when RESP transactions are processed
FOR ADVISOR USE ONLY
Counsel Connect
• Advisor Web Access to RESP specific information:
– RESP Details section describes:
•
•
•
•
beneficiary information
contributions
grant and bond receipt
grant withdrawal amounts
– Transaction History
– Confirms, statements and tax receipts will display
as per existing functionality
FOR ADVISOR USE ONLY
TCE Specialists
For more information, please
contact your TCE Specialist
at: 1-877-212-9799
FOR ADVISOR USE ONLY
Disclaimers
The preceding information is presented by and property of Counsel Portfolio Services Inc. and is
for internal use and discussion only. This information is not to be discussed with or distributed to
any clients or prospective clients of your respective dealer. Counsel Portfolio Services Inc. is a
direct subsidiary of IPC Portfolio Services Inc., which is in turn an indirect subsidiary of
Investment Planning Counsel Inc. IPC Investment Corporation, a registered mutual fund dealer
and IPC Securities Corporation, a registered investment dealer, are wholly-owned subsidiaries of
IPCC. Copyright - Counsel Portfolio Services Inc.
Commissions, trailing commissions, management fees and expenses all may be associated with
mutual funds. Please read the Simplified Prospectus before investing. Mutual funds are not
guaranteed, their values change frequently and past performance may not be repeated. Investors
should consult their investment professionals and tax advisors prior to implementing any changes
to their investment strategies.
Last updated: Nov 12, 2013
FOR ADVISOR USE ONLY