Page 70 - A Canuck's Guide to Financial Literacy 2020

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• For students enrolled in part time education - $2,500 for the first 13 consecutive
weeks of school.

Maximum Term of a RESP

You can contribute to a RESP for up to 31 years, and the plan can remain open for
a maximum of 35 years, allowing for long term accumulation on a tax-deferred basis.
Contributions and the grant portion amounts accumulate in the plan-tax free.

Can you deduct RESP contributions?

Unlike the RRSP deduction, you cannot claim a tax deduction towards your RESP
contributions. However, you will get the benefit of tax deferral as the income and grant is
sheltered from tax.

What if the Child Doesn't Attend School?

If the child doesn't attend school, the funds can also be withdrawn but for non school
purposes. Keep in mind that when the funds are withdrawn for non school purposes, the
government grant will go back to the government and the income portion of the RESP, also
known as the Accumulated Income Payment will be taxed at an additional federal penalty
tax of 20% (12% in Quebec). The amount of money contributed to RESP will not be taxed,
just the interest earned or investment gains.

For example, you have $10,000 in your RESP broken down as:

• Capital: $5,000
• Grant: $1,500
• Income: $3,500

If you were to withdraw for non school purposes, $1,500 will go back to the government and
$3,500 will be taxed 20% or 12% in Quebec.

Transferring a RESP into an RRSP

The income portion of a RESP can be transferred into the subscriber's RRSP. There is a
lifetime limit of $50,000 of AIP (income) which can be transferred into the subscriber’s
RRSP or spousal RRSP, as long as there is available contribution room. In order to
successfully transfer, two conditions must be met

• The RESP must have existed for 10 years or longer
• All beneficiaries must be at least 21 years of age and not attending post secondary
education