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Parents (and grandparents) want the best for their children and grandchildren, including a good education. In today's competitive job market, a college or university degree is more important than ever and will likely become even more necessary in the future. That's why it's essential to start planning for the costs of education right now.

Registered Education Savings Plans

Registered Education Savings Plans (RESPs) are one of the best ways to meet your family’s education savings goals.

With RESPs, you can contribute to the future cost of a child’s education. Unlike RRSPs, contributions made to an RESP are not tax-deductible. However, the contributions have the opportunity to grow tax-sheltered in the account. And the income earned on the contributions is not taxable until paid out to a beneficiary (who will be typically taxed at a very low rate, if at all).

Withdrawals of income can be made to a beneficiary in full-time attendance at a qualified post-secondary institution. There is no limit on capital withdrawal. It can be made to either subscribers or beneficiaries.

While there are currently no annual contribution limits, you can only receive the Canada Education Savings Grant (CESG) on the first $2,500 in contributions per year, or up to the first $5,000 in contributions, if sufficient carry forward room exists. The maximum CESG paid per year is $1,000. Any contributions over and above these amounts will not receive any CESG for the current year or subsequent years. The lifetime RESP contribution limit is $50,000 for each child. You can make contributions to an RESP for up to 31 years, and the plan must be terminated no later than 35 years after you first opened it.

What happens if, for any reason, your chosen beneficiary doesn’t pursue post-secondary education? In that case, you can either name another beneficiary to the plan or transfer any unused income to your own (or your spouse’s) RRSP, up to a $50,000 limit, provided you have the contribution room. You can also have the income refunded with an additional 20% tax applied on top of the marginal tax rate. If you choose to be refunded, you’ll only be taxed on the gains because your contributions were made with after-tax dollars, and, therefore, they’re not subject to additional taxes upon withdrawal.

Finally, if you wish to contribute for the current year, ensure you have your child’s Social Insurance Number and plan to contribute before the end of December.

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People with a disability often qualify for disability benefits from their provincial government. The amount they qualify for usually depends on their level of assets or income.

If you have a child with a disability and plan to leave them an inheritance, setting up a Henson trust for them will help to ensure that they do not lose their disability benefits.

A Henson trust is a fully discretionary trust (that is, the trustee has full discretion as to when and what funds are given to the beneficiary) designed specifically to benefit persons with disabilities. The designated trustee manages the trust assets and seeks to protect these assets (typically an inheritance) from being considered as belonging to the disabled person, so that person remains eligible to collect government benefits and entitlements.

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Registered Disability Savings Plans (RDSPs) was created to provide a vehicle for parents and others to invest funds on a tax-deferred basis for the long-term security of a person with a disability.

To be eligible for an RDSP, the person receiving the benefit from the plan must be a Canadian Resident and qualify for the Federal Disability Tax Credit (DTC). In addition, the individual must have a severe and prolonged mental or physical impairment to obtain the DTC. RDSPs can be opened by the individual benefiting, their parent or legal guardian.

Plans must be issued by a registered corporate trustee and administered on behalf of the disabled beneficiary. Only one RDSP per beneficiary is allowed at any time; however, an existing plan can be transferred to another issuer.

Where the beneficiary is deemed not to have contractual capacity, a “qualifying family member” or “QFM” (their parent, spouse or common-law partner) may open a plan on behalf of the individual. However, note that this is a temporary measure introduced to address the lacuna in most provinces’ legislation, which prevented many such individuals from opening an RDSP. This provision is set to expire in 2018, by which time it is hoped the provinces will have amended their legislation to address this situation.

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We thought you would appreciate this summary of the recent Federal Budget.

Highlights Include:

• Capital gains inclusion rate
• Lifetime capital gains exemption
• Canadian entrepreneurs’ incentive
• Alternate minimum tax
• Employee ownership trust exemption
• Home Buyers’ Plan
• Disability support deduction

If you have any questions or if there is anything we can do to help, please do not hesitate to reach out.

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With the rising number of fraud attempts, we thought we would share the article below about how to recognize, reject and report fraud.

As always, if you have any questions or if there is anything we can help you with, please don’t hesitate to contact us.

The three Rs: Recognize, Reject and Report At Scotia Wealth Management, we’re committed to helping you keep your accounts and financial information safe and secure. By helping you recognize, reject and report the most common types of scams, together, we can help prevent financial fraud.

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