Tax Tips & Advice

Resolve to Improve Your Finances: Four Tips for the New Year

No Comments 18 December 2013

EOY Tax TipsIt’s that time of year again: holiday season. And after all of the get-togethers, late nights, and over-indulgence, many of you will adopt New Year’s resolutions that include everything from giving up vices to getting in better shape. Health will undoubtedly be a common theme, and while that typically refers to the body, it’s also a good time to look at your financial health. The following tips will help improve your finances in 2014:

Get Rid of Debt

“I’ll pay off my credit card/loan/financing debt next month” is a phrase many of us utter, but few follow through with. By retaining a debt, you constantly accrue interest, keeping us in a cycle of unnecessary spending. But this doesn’t have to be the norm. In fact, the Canadian Bankers Association recently pointed out that more than 64 per cent of Canadians entirely pay off their credit card debt each month. That can be you. Why not start taking steps towards paying off your debts in January? When setting your budget for the month, consider what it will take to eliminate your debt altogether and plan accordingly.

Prepare for Emergencies with a TFSA

Even the best laid plans can go awry, so expect the unexpected – especially when it comes to your finances. A simple way to do this is by creating an emergency fund. If you carry debt you are far less likely to start planning for the future. Putting aside some money each month into a Tax Free Savings Account (TFSA) with may help to prevent you from having to go into debt.

TFSAs make your income, interest, and gains tax free. You can use them to save up to $5,000 each year and can withdraw from them anytime. So, should you suddenly need money in a hurry you will be ready.

Save for a Down Payment

Homeownership can seem like a distant fantasy to many Canadians who are just starting out. However, by planning strategically you can make that dream a reality. First, understand the facts. The minimum down payment is 5 per cent, though by paying so little you must take out insurance, which can prove costly. With that in mind, by paying 20 per cent instead you can do away with mandatory insurance payments. That should be your target.

Additionally, if you have an RRSP you can look at the Home Buyer’s Plan; it allows you to withdraw up to $25,000 without being taxed. This essentially acts as a loan to yourself, requiring you to pay back into your RRSP over 15 years. It’s a simple step that can jumpstart your journey to homeownership.

Get the Most from your Retirement Savings

Planning for retirement means taking a very honest look at where you are today: your lifestyle, your income, family status, where you see yourself in the years to come, and what you want to do once you retire.  All of these factors play an important role in how you save and invest for those post-career days.   Estimates show that an average couple spends about $50,000 per year once retired. That can sound daunting, though there are a number of invaluable resources at your disposal. For instance, if you have worked most of your life, you can expect the Canada Pension Plan (CPP) and the Old Age Security Program (OAS) to provide approximately $30,000 annually.

As always, your ability to save will be directly affected by the debt you carry, the interest you pay, and, of course, the surprises you encounter along the way. Whatever your retirement goals, plan to save more, spend strategically and, most importantly, start today.

How will you improve your finances in the New Year?


Adapted from New Year’s Resolutions That Will Improve Your Finances in 2011


Tax Tips & Advice

Year-End Tax Strategies

No Comments 27 November 2013

With little more than a month before December 31st and the end of the tax year, you may think the only thing you can do now to lower your income tax bill next April is make charitable donations.

But while giving to charity is on our list of tax strategies below (and just a great thing to do!), it’s certainly not the only thing you can do to reduce your payable income tax before the year is out. Checking off the strategies on this list can take you to a whole new level of holiday cheeriness.

1) Contribute to your Registered Retirement Savings Plan (RRSP).

If you’re not over your contribution limit yet, this is the best possible way to reduce your income tax because it’s a dollar for dollar straight-off-the-top tax deduction.  Check your Notice of Assessment or Notice of Reassessment from the Canada Revenue Agency for 2012 to find your RRSP deduction limit for 2013. The RRSP Deduction – Should You Use It This Year or Carry It Forward? will help you make the most of your RRSP contribution.

2) Put money into a Tax Free Savings Account (TFSA).

Tax Free Savings Accounts are a great way save money.  Interest earned on the money invested is tax-free; that means no tax bill when you withdraw your funds.

The TFSA limit for 20132 is $5,500 – plus any unused TFSA contribution room left over from the previous year, taking into account any withdrawals you made from your TFSA in the previous year. Read Eleven Things You Need to Know About Tax-Free Savings Accounts to learn all the details.

Can’t do both, and wonder which one you should contribute to? See What’s Best? A TFSA or an RRSP?

3) Give to charity.

While only donations to charities and other organizations that have the Canada Revenue Agency’s (CRA’s) seal of approval will earn you tax deductions, the list is long. And up to seventy-five percent of your net income can be claimed as donations!

Maximize your charitable giving by donating more than a total of $200, as you get more of a deduction for donations over this amount. A good idea is to have one spouse claim all the charitable donations for your household on his or her tax return to truly maximize the tax credit.

4) Register your child(ren) in physical  and/or artistic activity programs.

If you do, you’ll then be able to claim the Children’s Fitness Tax Credit and/or the Children’s Arts Tax Credit.  Both of these allow you to claim up to $500 per child to help you recover the cost of registering a child in such a program.

Be sure to check that the program is eligible for the appropriate tax credit before you enroll your child, however, and make sure that you keep your program registration receipt.

5) Hire your spouse or child in your business.

The salaries of employees are always a tax deduction, which means that if you have a business and hire your spouse or child to work for you, you can deduct their salary, too. This can work very effectively as income splitting, reducing your family’s total tax bill by moving income from one family member with a higher income to one with a lower income. But of course there are rules that must be followed.


Tax Tips & Advice

Strange Scary Taxes From Around the World

No Comments 30 October 2013

HalloweenStrange obviously.

Scary because some of these will make you slap yourself and yell, “What were they thinking?”

But as most of these are cases where you pay more tax, not less, you know exactly what the lawmakers were thinking – bringing more money into government coffers. Still, you have to wonder how they came up with some of these.

Another Reason Crime Doesn’t Pay

Taxes on illegal activities have to be among the strangest. Tennessee, for instance, taxes the possession of illegal drugs. Once you purchase any illegal substance in that State, you have 48 hours to report to the Department of Revenue and pay your tax. (You have to wonder if any state police habitually hang out at the tax office just to see who shows up.)

North Carolina has a similar law.

And our own Canada Revenue Agency will definitely tax illegal substances too. Just ask Marc Emery. The BC marijuana activist paid over $580,000 in provincial and federal income tax on the sale of marijuana seeds alone. Apparently, the Income Tax Act does not distinguish between income being legal or illegal. All it says is that any income that you make is reportable and subject to income tax.

Tax Tricks and Treats

With Halloween just around the corner, maybe the thought of becoming a witch has flitted across your mind. If so, you’ll envy the citizens of the Netherlands who can write off the costs of witch training. Margarita Rongen runs a school for witches there offering courses 13 weekends a year (on the weekends closest to a full moon of course). Participants practice outdoor rituals, learn healing with herbs and stones, making potions, divination and fortune telling with crystal balls and hieroglyphs. Fees for the full curriculum run to $2,210 EUR ($3,165 CAD) – a treat of a tax deduction indeed.

Or maybe you’re thinking of visiting a haunted house to get some spooky thrills. Be prepared to shell out more for the treat in New York; there you have to pay sales tax on your haunted house ticket if the admission charge is more than 10 cents. Scary!

Kentucky’s new sales tax may scare you even more – that state has decided to tax candy. The idea is to tax candy that doesn’t contain flour; candy that does contain flour is exempt. The application of the sales tax makes it even stranger, though – some healthy food is getting taxed, too, such as breakfast bars.

Ouch! That Really Hurts!

The state of Arkansas charges a six percent tax on body piercing, tattooing and electrolysis. Fortunately if you are a person wanting to have one of these services done in that state, paying the tax is the responsibility of the seller, not the buyer.


But at first hearing, perhaps the strangest tax of all is the European cow flatulence tax. Cows are gassy creatures. In fact, according to the U.N. Food and Agriculture Organization, livestock accounts for approximately 18 percent of the world’s greenhouse gasses. So the powers-that-be in some countries such as Ireland and Denmark have proposed taxes on farmers and ranchers based on their livestock’s’ output. In Denmark the levy is as high as $110 per cow.

Tax Tips & Advice

Shop Smart: Tips for Getting Through the Season of Spending Unscathed

No Comments 17 October 2013

Holiday ShoppingThanksgiving officially kicked off the season of spending. Halloween, Black Friday and Christmas are just around the corner!  To avoid shock on your next credit card bill, there’s an easy way to save money: leftovers. Approximately 60 per cent of Canadians buy at least one lunch per workweek and that adds up quickly. So, if you’ve been bringing in turkey sandwiches for the last few days, you’re ahead of the game. During the most expensive time of year, getting the best value for your dollar is paramount. With that in mind, the following tips will help you shop smart from now until the end of the year.

Halloween: Recycle, Reuse, and Rummage for your Costume

With Thanksgiving in the books, the next big event is fast approaching. A 2012 Retail Council of Canada poll suggested that Canadians spend an average of $75 on Halloween. As you know, you don’t have much wiggle room when it comes to what you hand out – sure, you want to be healthy, albeit you don’t want to see your property toilet-papered; it’s a fine line. Remember: buying in bulk is essential. How else can you save money?

If you’re not a packrat, you still likely have the makings of a good Halloween costume hidden in your closet, so get creative. Otherwise, hit your local vintage or discount store and do it early, because the competition is fierce.

Black Friday: American Thanksgiving Equals Canadian Savings

Following American Thanksgiving in November, Black Friday is a retail extravaganza that typically shatters sales records. In the past, it was largely reserved for bargain-hunters south of the border, though it began attracting ever-greater numbers of Canadians. To counteract lost revenue, many Canadian retailers now offer their own Black Friday promotions.

Furthermore, the following Monday – Cyber Monday – is quickly becoming one of the best online shopping days of the year, with plenty of deals accessible directly from your computer or mobile device. More and more Canadians are shopping online, with a Forrester research report predicting that, over the next five years, annual sales are expected to rise from $20.6 billion to $33.8 billion. Why not take advantage when online shopping is most affordable?

Of course, neither of these days is an excuse for binge buying, yet they are fantastic chances to get deals on the things you would buy anyway.

Gift Buying and Traveling: Think Ahead

In mid-December, you will probably ask yourself, “Why didn’t I think ahead!?” Enduring a mall on December 24th is stressful and diminished options mean you will pay more. The people on your gift list don’t tend to change, so shop all year long, taking advantage of any sales or timely opportunities as they present themselves.

This approach also applies to travel. If you’re heading out of town, make arrangements early, consider car pools, and watch for changes in airfares. Also, if you can travel on December 25 or 31, you will get the same service at a better rate.

Sure, you will spend more than usual during the holidays, but if you plan ahead and budget correctly – using online tools available from – you can limit the damage to your bank account.

So, do you have any tips to shop smart this holiday season?

Tax Tips & Advice

Think Small: Four Simple Tips for Saving Money

No Comments 09 October 2013

Think Small Save MoneyYou’re just starting out and you can’t imagine what it takes to qualify for a mortgage or get an investment portfolio off the ground. Don’t be overwhelmed; even the savviest investor was once in your position. So, what should you do to start preparing for the future? Think small! Setting achievable goals can mean big savings over time. With that in mind, here are some helpful tips to cut costs by making simple changes:

1. Trust your Thermos

“For just the price of a cup of coffee,” is a phrase you’ve heard countless times, though don’t trivialize the cost. According to a 2011 study of coffee drinking, Canadians consume an average of 2.7 cups per day. That’s 985.5 cups per person, per year.

So, even if you only purchase one third of your coffee from cafes, restaurants, and donut shops and you spend about $1.60 a cup – a rather low estimate in the gourmet coffee era –  that’s over $525 per year. On the other hand, coffee that you make yourself costs an average of $0.42 per cup, cutting your cost by almost 75 per cent.

2. Consider a No-Fee Bank Account

Pennies might be a thing of the past, yet every cent still counts and you can save 18,500 of them annually by switching to a no-fee bank account. A 2010 study showed that 55 per cent of Canadians incur fees when making transactions with their chequing accounts. An average of $185 per person, per year. Make the switch to a no-fee account in a matter of minutes and start saving.

3. Invest in a Bicycle or Take the Sole Train

Canadian winters can be harsh and many people face huge commutes, but if you live relatively close to work, consider using a bicycle or walking. Both are great for your health and your wallet. The current cost of a monthly transit pass in Montreal is $77. In Vancouver, it ranges from $91 to $170, while the Toronto fare is $128. Of course, driving increases your spending exponentially. No matter where you live, you can save by driving less, taking fewer cabs, and generally limiting the amount you spend on transport.

4. Stop Carrying a Credit Card Balance

Do you remember your first credit card and the possibilities it opened up? It’s likely that the most frequent piece of advice you were given after signing the back was “don’t carry a balance.” Everyone hears this, but who listens? As it turns out, a lot of people. Last year, Canadians had an average credit card debt of $3,573, however a large majority of us – 64 per cent – paid off our balance each month. Even if you have a low-interest card, this is another way to easily save a little bit of cash.

Do you have a money saving tip you’d like to share?

RRSP, TFSA, RESP, Stocks, Tax Tips & Advice

The RRSP Deduction – Should You Use It This Year or Carry It Forward?

No Comments 19 September 2013

The RRSP Deduction – Should You Use It This Year or Carry It ForwardIf you have set up an RRSP (Registered Retirement Savings Plan) and made contributions to it, you’ve done one of the best things you can do in terms of employing tax strategies for reducing the amount of income tax you will have to pay.

But contributing to an RRSP (at as early an age as possible) is just the first step of this strategy; the second, and most important step, is to use your RRSP income tax deductions as effectively as you possibly can – which means “you got to know when to hold ‘em”, as Kenny Rogers sang. Carrying your RRSP deduction forward rather than using it in a particular tax year can provide you with even more income tax savings in the long run.

So how do you know when you should use your RRSP deduction or when you should carry it forward instead?

There are three basic situations where you would be better off carrying all or some of your potential RRSP deduction forward instead of using it all;

1. When you don’t have the income to justify using the deduction.

There may be years when you have a low income. You may be a student or experience a business loss. Or perhaps you move from full-time to part-time work or lose a job part-way through the year.

Whatever the reason, there’s not much point in using your RRSP deduction to bring down your income level if you don’t have much income in the first place.

2. When you know or suspect that you are going to make significantly more money the next year.

The key to using this strategy effectively is to know what increase in income is “significant” – and the answer to that question is that significant income is an increase in income that moves your income to a higher tax bracket, because the higher the tax bracket, the more income tax you pay. For 2013;

  • If you make $0-$11,038; you will be taxed 0% on it
  • If you make $11,039-$43,561, you will be taxed 15% on it
  • If you make $43,562-$87,123, you will be taxed 22% on it
  • If you make $87,124-$135,054, you will be taxed 26% on it
  • If you make over $135,054, you will be taxed 29% on it

(Keep in mind that these are the federal tax rates; each province/territory adds their own tax to federal tax.)

So the most effective way to use your RRSP deduction is to use it to lower your tax bracket, so you’re reducing the percentage of tax you have to pay on your income.

For instance, suppose that in 2013 you purchased an RRSP for $12,000. That same year, your income was $48,000. Looking at the tax on different tax brackets, this would be a good year to use your RRSP tax deduction because $48,000 puts you into a “higher” tax bracket.

But you shouldn’t use all of it in this case, but should claim only $4,439 of your $12,000 RRSP contribution  ($48,000 minus $43,561) – just enough to reduce your income to the next lowest tax bracket, moving you from a 22% tax rate down to 15%.  The rest you should carry forward, building up your RRSP deduction room for the next time you need to use it.

Now be aware that this example is simplified. To actually use this system to maximize your RRSP deduction, you have to take into account the provincial tax rates as well to know how much income tax you’re truly paying on your income, as the income tax rates in Alberta, for example, are very different than those in Ontario.

3. When you are approaching age 65 and worried that your GIS (Guaranteed Income Supplement) benefit payments may be clawed back.

If you are nearing age 65 and think you may be eligible for Guaranteed Income Supplement (GIS) payments, you might want to put off claiming your RRSP deductions for several years and let them build up so you can claim them all at once when you’re 65.

RRSP deductions reduce your net income for tax purposes, so doing this could drop your income back down to within the GIS income level required to avoid having your GIS benefits clawed back.

Because the GIS is designed as an income supplement for people with low incomes, you are only allowed to earn $3,500 in net employment income (other than Old Age Security (OAS) and GIS payments) before GIS payments start to get clawed back – at a rate of 50 cents on the dollar.

So by “bundling” your RRSP contributions and claiming them all at once, you might be able to avoid the clawback for that year.

Image courtesy of typexnick.

Home, RRSP, TFSA, RESP, Stocks, Tax Tips & Advice

The Difference Between the Home Buyers’ Amount and the Home Buyers’ Plan

No Comments 12 September 2013

Home_buyersConfused about the differences between these two?

While both can be helpful when you’re buying or building a home, only one is an actual tax credit. Here’s an outline of these two tax programs for first-time home buyers and/or people with disabilities to make it easy for you to compare them.

The Home Buyers’ Amount

The Home Buyers’ Amount is the tax credit.

If you or your spouse or common-law partner purchased a qualifying home in Canada in the previous year, you can claim a tax credit of up to $5,000, which will reduce the amount of federal tax you have to pay.

The catch is that you have to be a first-time home buyer, which the Canada Revenue Agency (CRA) defines as a person who has not lived in another home owned by you or your partner in the year of acquisition or in any of the four preceding years.

The home doesn’t have to be a single family house to qualify; you can still get the tax credit if you’ve bought a condo, townhouse, mobile home or even an apartment. Homes under construction also qualify.

And if you are eligible for the disability amount or you bought the home for someone related to you who is eligible for the disability amount, you don’t have to be a first-time home buyer. (You or the related person with a disability must occupy the home as your principal place of residence no later than one year after you’ve acquired it to claim the Home Buyers’ Amount, though.)

The Home Buyers’ Plan

The Home Buyers’ Plan, or HBP, is like a loan program for people with RRSPs.

Its purpose is to allow people to withdraw funds from their Registered Retirement Savings Plans to buy or build homes in Canada for themselves or for related persons with disabilities. The tax break consists of not having the RRSP withdrawals taxed as income.

If you qualify for the HBP, you can withdraw up to $25,000 in a calendar year from your RRSP.

You will have to repay all the RRSP funds you have withdrawn within 15 years from the time you’ve withdrawn them by repaying an amount to your RRSPs each year until your Home Buyers’ Plan balance is zero.

Like the Home Buyers’ Amount, you have to be a first-time home buyer to qualify, unless you are a person with a disability or are acquiring a home for a related person with a disability. And like the Home Buyer’s Amount, you have to occupy the qualifying home as your principal place of residence no later than one year after buying or building it.

In Sum

If you have RRSPs, the Home Buyers’ Plan can provide real financial savings by reducing the size of your potential mortgage (and the amount of mortgage interest you’d have to pay). But even if you don’t, you can still get a substantial tax break thanks to the Home Buyers’ Amount.

Business Income, Self Employed and Small Business, Tax Tips & Advice

Are You an Employee or Are You Self-Employed?

No Comments 28 August 2013

self-employment-ideas-300x200The world of work has been changing. With the increasing popularity of hiring contractors rather than full-time workers and telecommuting, the number of people with defined jobs with defined benefits is shrinking .

And sometimes it can be tricky figuring out whether you’re an employee or self-employed.

But when it comes to taxes, you have to know, because tax-wise, there’s a huge difference between the two.

If you’re an employee, your employer will contribute to your Canada Pension Plan and Employment Insurance and you may get other employee benefits such as paid leave and a company pension.

If you’re self-employed, you have none of these benefits (although you may get Employment Insurance Special Benefits if you pay for them) – but you will have tax deductions that employees don’t, such as the ability to write off many of your business expenses.

If you’re not sure whether you’re an employee or self-employed here are some of the key elements that the Canada Revenue Agency (CRA) uses to determine a person’s employment status.

Who’s Making the Decisions?

What it boils down to is your relationship with the person or company that’s paying you. To decide whether you’re an employee or self-employed, ask yourself these four questions:

1) In your daily working life, who makes the decisions about what work is to be done, how and where?

As a self-employed person, you are free to work when and for whom you choose and may provide your services to different payers at the same time. That means you may choose to accept work from a particular payer – or refuse it.

An employee has no choice. While an employer may ask for your input, you do what the employer assigns you to do.

2) Who provides the tools and equipment to do the work?

Stethoscopes, saxophones, saws – self-employed people provide whatever equipment is necessary to do the work. And that equipment often involves a significant investment, especially when it involves specialized or large items, such as dental equipment or heavy machinery.

Employers provide the tools necessary for employees to do the work.

But an employer providing some hand tools, for instance, doesn’t automatically make you an employee; what is relevant, says the CRA, is “the significant investment in the tools and equipment along with the cost of replacement, repair, and insurance.”

3) Are you able to subcontract work or hire assistants?

While employers contract with self-employed workers to do particular jobs or projects, it’s not necessarily a requirement of the work that a self-employed person do the work himself. He or she may choose to hire someone else in turn to do the work.

Employees have to perform their work personally and don’t have the ability to hire helpers or assistants.

4) Perhaps most significantly, who’s taking the financial risk and has the opportunity for reward?

If you are self-employed, you bear the brunt of the responsibilities for completing whatever work you have taken on. You are responsible for your own operating expenses. Doing the work may involve expenditure on your part and you are financially liable if you don’t fulfill your contract.

On the other hand, you have the opportunity to profit from the work that you do (or incur a loss).

Employees generally do not share in profits or suffer losses incurred by the business.

For more details about the difference between being an employee and being self-employed, see the Canada Revenue Agency’s RC4110 Employee or Self-employed?

Education, Savings, Tax Tips & Advice

7 Back to School Tax Tips

No Comments 14 August 2013

UCF class sizeHeaded back to school this fall? Then you’ll be pleased to know that there are both tax credits and potential tax deductions that will help cushion the blow of your student-related expenses.

See how many of these school-related tax tips apply to you and start saving your receipts.

1) Are you enrolled either full-time or part-time in a qualifying program at the post-secondary level?

A qualifying program, according to the Canada Revenue Agency, is “a program that lasts at least three consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). Instruction or work includes lectures, practical training, and laboratory work. It also includes research time spent on a post-graduate thesis.”

If you are, and are a full-time student, you can claim an Education Amount of up to $400 a month and up to $65 a month for books for each month you are in school.

If you are, and are a part-time student, you can claim an Education Amount of up to $120 a month and up to $20 a month for books for each month you are in school.

2) Have you paid tuition, admission fees, exam fees, or fees to enroll in specific courses that were more than $100?

These fees have to have been paid to a designated education institution, but that doesn’t mean that only Canadian universities and colleges “count” – you could also be studying at a post-secondary institution in another country or taking a training course not provided by your employer. Learn more about the Education & Textbook Amounts Certificate.

And don’t forget to claim your Education and Textbook Amounts even if you don’t have much or any income in a particular year – you can not only carry these amounts forward indefinitely but transfer them to a family member to help them reduce their payable tax if you wish.

3) Have you paid interest on a student loan?

If that loan was from the Canada Student Loans, the Canada Student Financial Assistance programs, or a similar provincial or territorial programs for post-secondary education, you can claim the interest that you or a relative paid on that loan in the current tax year and/or the previous five years.

4) Will you be moving to attend school?

It’s not just the obvious moving expenses you can claim, such as having your possessions packed and hauled to your new location, but also travel expenses such as meals and accommodation during your trip, and even expenses such as the cost of utility hook-ups and disconnections. See this Canada Revenue Agency list for details. Note that you have to have moved at least 40 km, though.

5) Will you be using public transit to get back and forth to school?

You’ll want to be sure to buy and use the kind of transit passes that will qualify for the Public Transit Tax Credit, weekly or monthly passes that allow for unlimited travel – ride or trip passes are not eligible.  If your transit pass is included in your tuition fees, your educational institution will give you a separate receipt.

6) Will you have child care expenses?

Of course students with children also qualify for the Canada Child Tax Benefit, even if you share custody. See How to Make Sure You Get the Canada Child Tax Benefit for details.

7) And our last and perhaps best tax tip for going back to school – be sure you keep all your receipts and file your income tax when the time comes. Even if you don’t have any income, you will still have paid out GST/HST while you’re going to school and may qualify for the GST/HST Tax Credit. But you have to file your income tax return to get it.

Education, Family, RRSP, TFSA, RESP, Stocks, Tax Tips & Advice

Help Your Child Go to College or University With an RESP

No Comments 07 August 2013

What parent doesn’t hope that their child pursues an education past high school so he or she can get a decent job and live a better life?

But this isn’t Denmark or Argentina where education is free at all levels. Post-secondary education here costs money and lots of it. Having funds in an RESP to draw on can be a big help to your son or daughter when the time comes.

What Is an RESP?

RESP stands for Registered Education Savings Plan. It’s a way for people to set money aside for children’s future educational needs – money that grows tax-free.

Individual, family and group RESPs are available from RESP providers such as banks, credit unions, certified financial planners and group plan dealers. See the government’s current List of RESP Promoters.

How Does an RESP Work?

Essentially, a subscriber (such as you, the parent) sets up an RESP by arranging with a promoter, a person or organization authorized to set up RESPs, to administer the RESP and pay out funds to the beneficiary, the student.

These funds are paid out by the promoter as Educational Assistance Payments (or EAPs).

To qualify for EAPs, a student has to:

  • be enrolled in a qualifying educational program (a post-secondary school level program that lasts at least three weeks and that requires a student to spend no less than 10 hours per week on courses or work in the program) or
  • be enrolled in a specified educational program (a post-secondary school level program that lasts at least three weeks and that requires a student to spend no less than 12 hours per month on courses or work in the program.

Tax-wise, the student includes the EAPs as part of his or her income on their tax return for the year that the student received them. The subscriber’s contributions are not taxable.

The Government Will Top It Up With Grants

The federal government will chip in and make contributions to your child’s RESP too.

The Canada Education Savings Grant (CESG) will add 20 percent to your annual contribution, up to a maximum of $500 each year for each beneficiary ($1,000 if there is unused grant room from a previous year). The lifetime limit for the grant is $7,200. You may also be able to get additional Canada Education Savings Grants, depending on your income.

The Canada Learning Bond (CLB) provides an additional grant of up to $2,000 per child to help families with a modest income. Children must be born after December 31, 2003 to qualify.

The provincial government of Alberta also provides contributions through its Centennial Education Savings Plan while the province of Quebec provides an Education Savings Incentive.

Anyone Can Set One Up for Anyone

And here’s something to tell the grandparents and your family friends – anyone can set up an RESP for anyone else with educational plans (adults can be beneficiaries, too, although the federal government will not “top up” plans for adults with grants).

You do need to keep track of the different RESPs that have been set up for each child and the amount that’s in them though, because there’s a $50,000 lifetime contribution cap per beneficiary.

How to Set Up an RESP

All you need is a Social Insurance Number for the child who is going to be the beneficiary.  Then it’s just a matter of picking an RESP provider. You’ll want to shop around as some providers charge service fees or set limits on how often you can contribute.

Our Best Advice

Start contributing to an RESP as soon as possible – ideally when your child is born.  Just like contributing to an RRSP, the sooner you start contributing, the bigger investment pot you’ll end up with.

If you end up closing an RESP because your child doesn’t choose to take any post-secondary education, you can avoid paying the 20 percent penalty and having the amount left over in your RESP added to your taxable income by transferring your investment gains in the RESP into your RRSP (assuming you have the contribution room to do so).

Find Out More

Choosing a Registered Education Savings Plan Provider (Government of Canada)

Registered Education Savings Plans (RESPs) (Canada Revenue Agency)