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Resp faq pg6

  1. 1. insightsFrequently asked questionsRESPThe Canada Education Savings Grant (CESG) and tax-deferredgrowth make registered education savings plans (RESPs) anattractive way to save for the rising cost of a child’s post-secondary education. The following questions and answersprovide important information about the RESP and howit works.Please note: In this document, “you” and “I” refer to the subscriber who contributes to an RESP on behalf ofa beneficiary.IntroductionQ. What is a registered education savings plan?A. A registered education savings plan, or RESP as it is commonly known, is a tax deferred education savings vehicle through which the federal government allows a subscriber to save money for a beneficiary’s post-secondary education.Q. What costs does the RESP cover?A. RESP money can be used to cover the student’s tuition, housing, transportation, books, supplies and other incidentals relating to the student’s education.Q. Is there a limit to the amount that can be contributed?A. Yes. The maximum combined contribution from all subscribers to each beneficiary is $4,000 per calendar year to a lifetime maximum of $42,000.Q. What are the relationships within an RESP?A. A subscriber is the person who creates the plan and who makes contributions to the plan. This could be anyone. However, if the RESP is a family plan, the beneficiaries must be related by blood or adoption to the subscriber. For this purpose, blood relationships include children, brothers, sisters, grandchildren and great-grandchildren. They do not include the subscriber, the subscriber’s spouse or common-law partner, nieces or nephews. The subscriber is responsible for tracking the total amount contributed to all RESPs on behalf of the beneficiary. A beneficiary is the person who will draw upon the RESP to finance their education.insights 1
  2. 2. insightsQ. Can there be more than one RESP per child?A. Yes. There may be more than one RESP per child, but total contributed amounts across all plans must not exceed $4,000 per beneficiary per calendar year.Individual and family plansQ. What is an individual plan and who can be a beneficiary?A. An individual plan is an RESP set up by a subscriber for one beneficiary. A subscriber may designate anyone as the beneficiary of the plan, including themselves, a spouse or common-law partner. There is no age restriction on the beneficiary of an individual RESP plan.Q. What is a family plan and who can be the beneficiary?A. A family plan is an RESP set up by a subscriber on behalf of one or more beneficiaries. However, each beneficiary must be under 21 years of age at the time of designation and must be related to the subscriber by blood or adoption. Children, grandchildren, brothers and sisters are considered blood relations, while nieces and nephews are not. Subscribers may not designate themselves or a spouse or common-law partner as beneficiary under a family plan.Canada Education Savings GrantQ. What is the Canada Education Savings Grant (CESG)?A. To promote education savings and give a boost to RESPs, the federal government introduced the CESG. The CESG is equal to 20 per cent of the annual contributions made to an RESP, up to a maximum of $400 per calendar year per beneficiary. In order to be eligible for the CESG, the beneficiary must be a Canadian resident and under age 17 at the beginning of the calendar year in which contributions are made.Q. Does CESG contribution room accumulate for every child under age 18, even if an RESP does not exist?A. Yes. CESG room accumulates for each child for every year from birth or from 1998, whichever is later, until the end of the calendar year of their 17th birthday, whether or not they have an RESP. This grant room can be carried forward to future years’ RESP contributions. However, the maximum annual contribution of $4,000 still applies and there are special conditions for 16 and 17-year-old beneficiaries.insights 2
  3. 3. insightsQ. What is the maximum age at which a child may qualify for the CESG?A. HRDC will only pay grants to RESPs of beneficiaries up to the calendar year of their 17th birthday. For beneficiaries aged 16 and 17, the grant will only be paid if: a) There have been contributions to the RESP of at least $100 per year in any four years prior to the calender year in which they turned 16, or b) Before the calender year the beneficiary turned 16, previous contributions totaled at least $2,000Q. What is Human Resources Development Canada (HRDC)?A. HRDC is the branch of the federal government of Canada that is responsible for monitoring and paying the CESG.Q. Is the CESG included in the calculation of the $42,000 lifetime contribution limit to an RESP?A. No. The lifetime contribution limit of $42,000 excludes the grants, as well as distributions and income earned on the investments in the plan.Q . Can unused CESG amounts be carried forward?A. Yes. If you contribute less than $2,000 to an RESP in any given year, you may apply for the unclaimed CESG in the following years, up to a maximum of $800 per calender year and a lifetime total of $7,200 per beneficiary.Q. How is the money taxed?A. Income accumulates in the plan tax-free. The CESG and the accumulated earnings, when paid out to the beneficiary for educational purposes, are taxed as income in the hands of the beneficiary. The return of contributions to the subscriber is not taxable because contributions to an RESP are made with after-tax money.Q. When is the CESG money paid?A. Contribution data is forwarded electronically by the RESP promoter (e.g., AIM Trimark Investments) to HRDC. AIM Trimark will receive a lump-sum payment from HRDC the following month, which will be used to purchase additional units or shares in the client’s account. HRDC processes CESG files or applications on a monthly basis.insights 3
  4. 4. insightsQ. If I hold more than one RESP, which account will receive the CESG amount?A. Where multiple applications for the CESG are made in the same month or quarter (AIM Trimark files applications to HRDC monthly), the CESG is deposited into the RESP to which the first contribution was made in the respective month or quarter. If contributions relating to the same beneficiaries are made on the same date, HRDC will automatically split the grant money proportionately.RESP regulations: InvestmentsQ. Are there limits to the types of funds in which I can invest?A. An RESP must restrict its investments to “qualified investments,” which are the same as qualified investments for an RRSP. However, unlike an RRSP, there are no foreign property limits for an RESP. Consult your advisor for your investment options.ContributionsQ. Who can contribute to an RESP?A. Anyone can contribute to an individual plan. Only a blood relative may contribute to a family plan. All contributions are considered to have been made by the subscriber.Q. I am living abroad and would like to set up an RESP for my child. Is this permitted?A. Yes. The subscriber need not be a Canadian resident for the RESP to qualify for the CESG, but they must provide a valid social insurance number (SIN) when setting up the RESP. However, the beneficiary must be a Canadian resident (Canadian students who choose to attend a foreign post-secondary educational institution normally remain Canadian residents for tax purposes). Please note that not all countries permit their residents (subscribers) to purchase Canadian mutual funds.Q. How long can I contribute to an RESP?A. Contributions may be made up to and including the 22nd year of the plan, but the total of all contributions can never exceed $42,000, the lifetime limit for each beneficiary. An RESP must be terminated on or before the last day of the 26th year in which the plan was created.insights 4
  5. 5. insightsContribution amountsQ. Is there a minimum contribution level?A. RESP rules do not stipulate a minimum contribution amount. However, to open an AIM Trimark account, an initial contribution of $500 must be made. The minimum amount for subsequent contributions is $50.Q. Can I determine how the contribution money should be divided between the beneficiaries of a family plan?A. Yes. You may indicate your desired allocation on the RESP application form as long as the total contribution per beneficiary per calender year does not exceed $4,000. You may change this at any time by calling your advisor. If no allocation is indicated, AIM Trimark will divide contributions equally between the beneficiaries. Contributions are not allowed for family plan beneficiaries after their 21st birthday.OvercontributionsQ. What happens if I exceed the maximum contribution amount in a given year?A. You will be subject to a penalty of one per cent per month on the overcontributed amount until the overcontribution is withdrawn. If there is more than one RESP for a beneficiary, you must keep track of all contributions made on behalf of the beneficiary.Q. Are there other consequences to overcontributing?A. Yes. The overcontributions are not entitled to the CESG. As well, the amount of the over contribution will be included in the calculation of the $42,000 lifetime contribution limit, even if it is withdrawn from the plan.Q. How will I know if there has been an overcontribution to an AIM Trimark RESP?A. AIM Trimark will only monitor AIM Trimark RESPs for contribution amounts over $4,000.00 per beneficiary per calendar year. AIM Trimark’s policy is to place the overcontributed amount in an open plan, using the same investment instructions and original trade date. A fax will be sent to your advisor within 24 hours informing them of the overcontribution adjustment.insights 5
  6. 6. insightsWithdrawalsQ. How does the beneficiary receive payments from the RESP?A. Payments made to the beneficiary under an RESP are called Educational Assistance Payments (EAPs). EAPs consist of income earned on contributions plus CESG amounts. The subscriber determines when and how much should be paid out of the plan to the beneficiary. To qualify for EAPs, the beneficiary must show proof of current full-time enrollment at an eligible institution (or part-time in the case of an individual with a disability). However, it is not necessary to submit receipts for expenditures. In order for a beneficiary to receive EAPs from an AIM Trimark RESP, the subscriber must submit the following information about the educational institution: • Type of post-secondary institution (university, college, etc.) • Institution’s name and address • Academic year start date • Name of program • Length of program (in years) • Length of academic year (in weeks) • Current year enrolled in (first, second, etc.) The post-secondary institution will normally provide this information on a standard “proof of enrollment” form on its letterhead.Q. May I, as subscriber, withdraw money from an RESP?A. Yes. There are two types of subscriber withdrawals: 1. The original RESP contributions belong to you and you may withdraw them at any time without tax implications. Any CESGs contained within the plan may be affected as follows: a) If the beneficiary does qualify for an EAP at the time of your withdrawal, it is not necessary to repay any CESG money. Proof of enrollment of the beneficiary is required b) If the beneficiary does not qualify for an EAP at the time of your withdrawal (e.g., if the beneficiary has not yet started a post-secondary program), CESGs in an amount equal to 20 per cent of your withdrawal amount must be repaid to the governmentinsights 6
  7. 7. insights If you withdraw more than $200 of unassisted contributions (contributions for which no CESG was received) made prior to 1998, the plans’ beneficiaries will not qualify for CESG for the remainder of that calendar year, nor for the following two years. As well, they will not accumulate any CESG room for the following two years Note that assisted contributions are considered to be withdrawn before unassisted contributions. 2. You may also withdraw the income that has accumulated in an RESP plan, in the form of Accumulated Income Payments (AIPs), if certain criteria are met: • All of the plan’s beneficiaries are over 21 years of age but none is pursuing a post-secondary education • The plan has been in existence for at least 10 years • You are a Canadian residentQ. May I withdraw money from an older RESP account (set up before CESGs were available) and use it to open a new account that is eligible for the CESG?A. No. The government wants to encourage the contribution of new money into education savings, not the recycling of existing savings. The rules state that the beneficiary will not be eligible for the CESG on recycled contributions if the withdrawals from an existing RESP total more than $200 of unassisted contributions prior to 1998. In addition, subsequent contributions to the RESP for the beneficiary will be tainted and will not be eligible for the CESG for the rest of that year and the two subsequent years.Eligible institutionsQ. What type of school may my child attend using RESP money?A. The school must be considered an “eligible institution,” which includes Canadian universities, community colleges, CÉGEPs, technical colleges and certain universities outside Canada.insights 7
  8. 8. insightsQ. What happens if the beneficiary does not pursue a post-secondary education?A. Here are the options: 1. Change the beneficiary. Under an individual plan, the new beneficiary can be anyone, even yourself. However, to be eligible to use the CESG money, the replacement beneficiary must be under age 21 and either the replacement beneficiary is the brother or sister of the former beneficiary. Or, both the former and replacement beneficiaries are under 21 and connected to the subscriber by blood or adoption. If this is not the case, the CESG money must be repaid. Under a family plan, the replacement beneficiary must be connected to the subscriber by blood or adoption and under age 21. The CESGs paid into the family plan can be used by the replacement beneficiary or any of the other beneficiaries up to a maximum of $7,200 per beneficiary. Any excess must be repaid. 2. Withdraw original contributions. You may redeem your original contributions from the plan tax-free, paying back any CESGs. Growth may be redeemed for non-education purposes as an Accumulated Income Payment under certain conditions. 3. Receive accumulated income payments (AIPs). If you are a Canadian resident, if the RESP has been in existence for at least 10 years and if none of the intended beneficiaries is pursuing a post-secondary education by age 21, you may withdraw the investment income that has accumulated in the RESP in the form of AIPs. You may then transfer up to $50,000 of this money to your RRSP or that of your spouse or common-law partner, provided unused RRSP contribution room is available. Any accumulated income you receive that is not transferred to an RRSP will be fully taxed in your hands at your top marginal tax rate. In addition, you will pay a penalty of 20 per cent of the withdrawn accumulated income. Alternatively, you may choose to give the accumulated investment income to an educational institution of your choice, although you will not receive a contribution receipt. For non-Canadian residents, this is the only option available for accumulated investment income when an RESP is terminated.insights 8
  9. 9. insightsTransferring in-trust assets to an RESPQ. Can in-trust assets be transferred to an RESP?A. It is possible to transfer in-trust assets to an RESP, but there could be potential tax and legal implications. You are strongly advised to speak to a tax and/or legal advisor regarding such transfers.Setting up an AIM Trimark RESPQ. How do I set up an AIM Trimark RESP?A. You must complete the AIM Trimark RESP application and determine if you require an individual RESP (one beneficiary) or family RESP (one or more beneficiaries). There is a different application for each of these types of RESP.Q. Does the beneficiary require a social insurance number (SIN)?A. AIM Trimark requires that the SIN for both the subscriber and beneficiary be provided at the time the plan is opened in order to register the plan with the Canada Customs and Revenue Agency.Q. How do I apply for a SIN?A. Most cities have an HRDC office (look in the blue pages of your telephone directory for the nearest location) where you can pick up a SIN application form. You can also download the form from HRDC’s Web site at You will need to provide an original birth certificate (or notarized copy) for each beneficiary. There is no fee for an initial SIN.Q. Who makes the application for the CESG?A. AIM Trimark, as administrator of the plan, will apply for the CESG on behalf of the subscriber.insights 9
  10. 10. insightsQ. Can I contribute to an RESP plan via pre-authorized chequing (PAC)? For more information aboutA. Yes. The minimum monthly amount is $50, although AIM Trimark will also set up this topic, contact your advisor, less frequent PACs for a larger amount. The maximum allowable amount for each call us at 1.800.874.6275 beneficiary is $333.34 per month ($4,000 per year, which is the total contribution or visit our website at amount allowed per beneficiary across all plans). What fees are associated with setting up an AIM RESP?A. There are no fees other than those normally charged by your advisor. AIM Trimark Investments is one ofAIM Trimark Investments Canada’s largest mutual fund companies with over $33 billion** in assets underAIM Trimark offers you a variety of material to help with education savings for a child. management. A subsidiary of U.K.-basedContact your advisor or AIM Trimark for the following additional material: AMVESCAP PLC, one of the world’s• Investing for the future – Education savings options largest independent investment• Tax & Estate info page: In-trust accounts managers, AIM Trimark employs more• Tax & Estate info page: Registered Education Savings Plans than 900 people in its Calgary, Montreal, Toronto and Vancouver offices. AMVESCAP is dedicated to helping people worldwide build their financial security, offering a broad array of investment solutions and services toThe information provided is general in nature and is provided with the understanding that it may not individuals and institutional investors inbe relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. 150 countries. Its securities trade on theReaders should consult with their own accountants and/or lawyers for advice on the specific London, Frankfurt, New York, Paris andcircumstances before taking any action. Toronto stock exchanges. AIM TrimarkCommissions, trailing commissions, management fees and expenses may all be associated with mutual and its associated companies underfund investments. Mutual funds are not guaranteed, their values change frequently and pastperformance may not be repeated. Please read the prospectus before investing. Copies are available the AMVESCAP umbrella draw onfrom your advisor or from AIM Funds Management Inc. the talents and expertise of more† AIM, the chevron logo and all associated trademarks are trademarks of A I M Management than 550 investment professionals Group Inc., used under licence. in more than 25 countries to manage* TRIMARK and all associated trademarks are trademarks of AIM Funds Management Inc. over $500 billion** in assets worldwide.Designed and paid for by AIM Trimark Investments. © AIM Funds Management Inc., 2003. MKIRFQE(05/03) **As at December 31, 20025140 Yonge Street, Suite 900, Toronto, Ontario M2N 6X7Telephone: 416.590.9855 or 1.800.874.6275Facsimile: 416.590.9868 or www.aimtrimark.cominsights 10