Page 67 - A Canuck's Guide to Financial Literacy 2020

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In life there are two things certain, death and taxes. Tax planning involves taking advantage
of tax-deferring investment vehicles and investment strategies in order to save on tax.
There are various tax savings strategies that one could implement such as estate freezes,
tax exempt life insurance, maximizing tax credits and more. Below we’re discussing various
type of tax saving accounts that Canadians can embrace and their features.

Registered Education Savings Plan

A Registered Education Savings Plan, also known as a RESP is a savings account for
parents who want to save for their child's education. Its an investment vehicle that allows
investment income to accumulate on a tax deferred basis. Funds within a RESP are used to
pay for post secondary education and related expenses

Opening a Registered Education Savings Plan

A RESP can be opened by anyone for the benefit of a beneficiary. It can be opened by
parents, guardians, grandparents and other relatives or friends. A beneficiary can be a
child but you can also name yourself or another adult as the beneficiary.

The person(s) opening the RESP is also known as the subscriber and they will be the one
contributing into the account for the benefit of the beneficiary to attend post secondary
education. There is a maximum contribution limit of $50,000 per beneficiary.

Why open a RESP?

The investment income inside the RESP grows tax free and when the beneficiary enrols in
post-secondary education, they can start taking out payments out of the RESP, also known
as Educational Assistance Payments (EAP). EAPs are a combination of investment
earnings and government grants inside of that RESP.

The RESP provider will generate a tax slip for the beneficiary when using EAP in which the
student would include it as income on his or her return for the year the student receives it.
As the student has limited income, there is very little amount of tax, if any, to be paid.

Canada Education Savings Grant (CESG)

One of the advantages of RESPs is the grant that is contributed by Employment and Social
Development Canada to help out with your child's education. ESDC pays a basic of 20% of
annual contributions that you make to all eligible RESPs for a qualifying beneficiary to a
maximum of $500 in respect of each beneficiary. This $500 limit becomes $1000 if there is
unused grant room from a previous year. There is a lifetime limit grant of $7,200.