for advisor use only counsel portfolio service’s registered education savings plan (resp )

FOR ADVISOR USE ONLY

Counsel Portfolio Service’s Registered Education Savings Plan (RESP )

FOR ADVISOR USE ONLYFOR ADVISOR USE ONLY

University tuition*

1988: $1,100

2013: $7,000

2023: $?

4 year program today:• $40,000?• $60,000?• $80,000?

*Approximate. $6,882 UWO tuition 2012-2013


Why a Counsel RESP?

• RESPs are a financial planning ‘must’ for most families• For clients with other Counsel accounts, consistency of

investment approach– Counsel investment philosophy and process extended to RESP

investments

• Detailed reporting through the Quarterly Portfolio Review• No account or trustee fee



What is an RESP?

A Registered Education Savings Plan (RESP) is an account used

to save for post-secondary education

Basic Structure:

• The subscriber (makes the contributions)

• The promoter (Counsel; administers the RESP )

• The beneficiary (the person who attends a post-secondary program)

Benefits :

• Contributions to the plan grow on a tax-deferred basis

• Provides access to various government grants

• Withdrawals of investment income and grants are usually taxed in beneficiary’s hands (typically in a low tax bracket)



How Does an RESP Work?

FOR ADVISOR USE ONLYSource: Canada Revenue Agency

1.

The promoter can make accumulated income payments.

Government grants (if applicable)

The promoter of the RESP administers all amounts paid into the RESP. As long as the income stays in the RESP, it is not taxable. The promoter also makes sure payments from the RESP are made

according to the terms of the RESP.

Subscriber enters into an RESP contract with the promoter and names one or more beneficiaries under the plan

Any designated provincial education

saving program that is paid to

the RESP.

Canada Education

Savings Grant (CESG) is paid to the RESP.

Canada Learning Bond (CLB) is paid to

the RESP.

Subscriber makes

contributions to the RESP.

The promoter can return the

subscriber’s contributions tax-

free.

The promoter can make payments to the beneficiary to help finance his or her post-secondary

education.




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5.The promoter can make accumulated income payments.







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Basic Beneficiary Requirements:

Must:• Have a valid Social Insurance Number (SIN)• Be a resident of Canada when designated as

beneficiary• For Family Plan Only: be under age 21 when named a

beneficiary



Contributions

• Contributions made by a subscriber are called “the capital portion” – Not tax deductible from the subscriber’s income – Interest paid on money borrowed to contribute to an RESP

cannot be deducted from income– Only qualified investments can be purchased

• Two types of contributions: • Assisted – these receive government grants/bonds

• Unassisted – these do not attract government grants/bonds

• There are no annual contribution limits• The lifetime limit is $50,000



RESP Grants and Bonds

• There is one type of grant available:– Canada Education Savings Grants (CESG)

• There is one type of bond available:– Canada Learning Bond (CLB)



CESGs

• An incentive provided by Employment and Skills Development Canada (ESDC )

• Equal to 20% of annual contributions made to all eligible RESPs to a maximum of $500 for each beneficiary per year*

• Lifetime limit of $7,200• ESDC will pay “Additional CESG” for each qualifying

beneficiary based on the subscriber’s net (family) income:– Additional 20% on the first $500 contributed if household

income is less than or equal to $41,544 • $600/yr.

– An extra 10% on the first $500 if household income is between $41,544 and $83,008

• $550/yr.

* Where unused CESG room is ‘carried forward’, $1,000 per year may be earned.



CESG Rules and Eligibility

• Beneficiaries may qualify for CESGs up to the end of the calendar year they turn 17 years of age

• Beneficiaries who are 16 or 17 years of age can receive CESGs if:– A minimum of $2,000 in contributions have been made and

not withdrawn before the year the beneficiary turns 16 years of age

Or,– A minimum of $100/year has been contributed and not

withdrawn in any of the 4 years before the beneficiary turns 16 years of age

– Beneficiary must be a resident of Canada when contributions were made



Canada Learning Bond

• An incentive provided by ESDC• For beneficiaries born after Jan. 1, 2004• Family must receive the National Child Benefit

Supplement each year to qualify• Maximum benefit is $525 initially, and $100/yr. until

the beneficiary turns 15 years of age• If the beneficiary does not go on to post-secondary

education, the CLB must be repaid



Family Plans

• Beneficiary must be related (by blood or adoption) to subscriber

• New beneficiaries can be added any time (without limit)

• Money in the plan is ‘communal’– Any child under the plan can use any part of the funds for

educational purposes

• For non-siblings, they must be related to the subscriber (not to each other)



Individual Plans

• Only one beneficiary• Beneficiary cannot be changed

– but the account can be transferred to a new individual account

• No restriction on age of beneficiary,– but if beneficiary is over 17 years of age, they will

not be eligible for the CESG



RESP Strategies to Consider

1. The ‘Front-Loader’

• Affluent clients• $50,000 maximum invested immediately• Only attracts $500 CESG• Maximizes tax-deferred compound growth• Depending on rate of return, can maximize RESP value• Can be volatile depending on investment choices• No dollar cost averaging opportunities




2. The ‘Mini Front-Loader + CESG Maximizer’

• Affluent/moderately affluent clients• $16,000 invested immediately• Becomes affordable after year 1; can PAC remaining

$34,000• $2,500 per year attracts max. $500 CESG/yr• Attracts full $7,200 CESG lifetime maximum• Maximizes tax-deferred compound growth on initial

deposit• Depending on rate of return, can maximize RESP value




3. The ‘Goal-Specific’

• Work backwards from a goal– e.g. set a total goal: Pay for $6,000 per yr x 4 yrs. =

$24,000

and attract the most CESG possible

– How much “CESG-eligible” contribution is needed? • Divide goal by 1.2 = $20,000

• Possible option: $2,500/yr. x 8 yrs.*

• $4,000 CESG earned

• The client ‘partners’ with ESDC to hit their goal

* Subject to special contribution rules for ages 16-17. Investment return may result in more or less than $24 K depending on how invested.




4. The ‘Late Bloomer’

• “Catch up” to earn CESG• Clients may be starting late• Can still catch up on missed CESGs from prior years • Contributions can earn up to $1,000 CESG per year

(on $5,000 contribution)– CESG missed between 1998-2006 = $400/yr.

(20% of $2,000 limit)– From 2007 on = $500/yr. (20% of $2.500 limit)



Withdrawals from an RESP

Two reasons that RESPs can be withdrawn from:

1. For educational purposes– Educational Assistance Payment (EAP) or – Post Secondary Education (PSE) withdrawal

2. For non-educational purposes – Accumulated Income Payments (AIPs)

Note: For either, subscriber contributions can be withdrawn at

anytime. This is called a capital withdrawal



RESP Withdrawals for Educational Purposes

EAP (Educational Assistance Payments)

PSE (Post Secondary Education)

What is it? Withdrawal from:• The investment growth• Government grants

Withdrawal from the contribution amount

Taxable • To beneficiary • Reported as income

Tax free

Limit on withdrawal? Yes No limit



EAP Withdrawal Limits

• No withholding taxes on EAP redemptions• Beneficiary cannot be enrolled in an educational

program as part of their employment• Beneficiary must be a resident of Canada

Qualifying Educational Program

At least 3 consecutive weeks long, 10+ hours/week

First 13 consecutive weeks - $5,000 max. (after first 13 consecutive weeks no limit)

Specified Educational Program

At least 3 consecutive weeks long, 12+ hours/month

First 13-week semester - $2,500 max.



Qualification Criteria for a PSE

• PSEs are intended only for educational expenses• PSEs can only be withdrawn if the beneficiary is a:

– Full time student enrolled in a qualifying educational program

– Or part time student enrolled in a specified educational program

• PSEs have the same taxable implications as regular capital withdrawals (no claw-back implications)



Beneficiary Attends Post-secondary Education

Growth on grants/bonds

Growth on client contributions

Grants/bonds

Client contributions

EAP

PSE

To Beneficiary(ies) (for educational purposes only)

To Subscriber (for educational purposes only)

Not

tax

ed

tax

ed


What Happens if the Beneficiary Does Not Attend Post-secondary Education?

• Capital Redemptions:– Tax-free payment to subscriber from the contribution portion

of the RESP– This will trigger a claw-back of grants/bonds paid to RESP

• CESG claw-backs:– CESGs can be shared with a sibling, provided that the sibling

has contribution room, otherwise, all grant money must be repaid to ESDC



What Happens if the Beneficiary Does Not Attend Post-secondary Education?

• Accumulated Income Payment (AIP): – A withdrawal of earnings by the subscriber that is not

intended for educational expenses• Subscriber can roll over the earnings to an RRSP provided there is

contribution room. The maximum rollover allowed is $50,000• Or, subject to taxes = nominal rate + 20% of withdrawal amount. A T4A

is issued to the subscriber

– Only allowed when the following conditions are met:• The subscriber is a resident of Canada• The payment is made to one subscriber of the plan (no joint payments)• The plan has been open for 10 years • Each individual beneficiary is over 21 years of age or

– the plan is being closed after 35 years, or– all beneficiaries are deceased



Growth on grants/bonds

Growth on client contributions

Grants/bonds

Client contributions

AIP

To client

To government

To client’s/spouse’s RRSP

To client (non RRSP). Taxable, plus 20% penalty tax

Beneficiary Does not Attend Post-secondary Education


Set Up and Features

• Account set up:

– Counsel Application Forms – Family or Individual

– ESDC Grant/Bond Application Forms

• Purchases:

– Placed through FundSERV or as direct orders

• Automatic programs available:

– PACs (Pre-authorized chequing)

– DRIPs (Dividend Reinvestment Program) – STEPs (Systematic Transfer and Exchange

Program)



Account Administration

• Account maintenance:– Updates (e.g. beneficiary information, subscriber

information, contribution allocation percentages by beneficiary and investment instructions on grant/ bond proceeds) must be submitted via a letter of direction

• Transfers-in:– A ‘standard’ RESP Transfer Form is used– Counsel Advisor Zone



Statements & Confirms

• Statements– New RESP section to be included– This section describes beneficiary information,

contributions, grant and bond breakdown, and grant withdrawal amounts

• Counsel Quarterly Portfolio Review– RESP accounts and details included

• Transaction Confirmations– Generated when RESP transactions are processed



Counsel Connect

• Advisor Web Access to RESP specific information:– RESP Details section describes:

• beneficiary information• contributions• grant and bond receipt• grant withdrawal amounts

– Transaction History– Confirms, statements and tax receipts will display

as per existing functionality



TCE Specialists

For more information, please contact your TCE Specialist at: 1-877-212-9799



DisclaimersThe preceding information is presented by and property of Counsel Portfolio Services Inc. and is for internal use and discussion only. This information is not to be discussed with or distributed to any clients or prospective clients of your respective dealer. Counsel Portfolio Services Inc. is a direct subsidiary of IPC Portfolio Services Inc., which is in turn an indirect subsidiary of Investment Planning Counsel Inc. IPC Investment Corporation, a registered mutual fund dealer and IPC Securities Corporation, a registered investment dealer, are wholly-owned subsidiaries of IPCC. Copyright - Counsel Portfolio Services Inc.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the Simplified Prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Investors should consult their investment professionals and tax advisors prior to implementing any changes to their investment strategies.

Last updated: Nov 12, 2013

for advisor use only counsel portfolio service’s registered education savings plan (resp )

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