Registered Education Savings Plans (RESPs)

Why Save for a Child’s Education? University tuition 1988: $1,100 * 2013: $7,000 ** 2023: $? 4 year program today: $40,000? $60,000? $80,000? *Approximate. Source: Canadian Federation of Students. ** $6,882 University of Western Ontario tuition

Why Save for a Child’s Education? Post-secondary education costs are significant and have risen considerably over the past 10 years Planning ahead can make saving more affordable and allows you to take advantage of compound growth over time –Help avoid significant debt-load so parents can focus on saving for their retirement –Help avoid burden of student loans which can take years to pay off, in turn delaying achievement of the student’s life goals Assistance is available from the federal government to support education savings

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 - Administers the RESP The beneficiary - Attends a post-secondary program

How Does an RESP Work? Diagram is simplified and represents a situation where contributions qualify for receipt of any government grants and the beneficiary attends post-secondary education.

RESP Benefits Contributions to the plan grow over time on a tax- deferred basis Contributions may qualify for various government grants Eventual withdrawals of investment income and grants are usually taxed in the beneficiary’s hands at a lower rate Where the beneficiary has little or no income, they will pay no tax on these withdrawals

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

Your Contributions Contributions are non tax-deductible from a subscriber’s income –Interest paid on money borrowed to contribute to an RESP cannot be deducted from income –Only qualified investments can be purchased There are no annual contribution limits The lifetime limit is $50,000 per beneficiary

RESP Grants and Bonds There are two types of grants available: –Canada Education Savings Grants (CESG) –Provincial education savings grants ^ –Alberta Centennial Education Savings Plan Grant (ACESPG) There is one type of bond available: –Canada Learning Bond (CLB) ^ The Quebec Education Savings Incentive is not offered in a Counsel RESP.

Canada Education Savings Grants An incentive provided by Human Resources & Skills Development Canada (HRSDC) 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 per beneficiary HRSDC 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/year –An extra 10% on the first $500 if household income is between $41,544 and $83,008 $550/year * Where unused CESG room is ‘carried forward’, $1,000 per year may be earned. ** 2011 tax year.

CESG Rules and Eligibility Beneficiaries may qualify for CESGs up to the end of the calendar year they turn 17 Beneficiaries who are 16 or 17 can receive CESGs if: –A minimum of $2,000 in contributions have been made and not withdrawn before the year the beneficiary turns 16 Or, –A minimum of $100/year has been contributed and not withdrawn in any of the 4 years before the beneficiary turns 16 –Beneficiary must be a resident of Canada when contributions were made

Canada Learning Bond An incentive provided by HRSDC For beneficiaries born after January 1, 2004 Maximum benefit is $525 initially and $100/year until the beneficiary turns 15 Family must receive the National Child Benefit Supplement each year to qualify

Alberta Centennial Education Savings Grant For Alberta parents only $500 to the RESP of any child born in Alberta after Jan , plus 3 annual contributions of $100 when the child turns 8, 11 and 14 provided that the child is attending school in Alberta* If the child does not attend a post-secondary educational institution, the grant money must be repaid *or satisfies the Ministry of Advanced Education and Technology criteria.

Family Plans Beneficiary(ies) 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 beneficiary 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, they will not be eligible for the CESG

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 any time. 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?YesNo 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 Type of Education Program Program RequirementsWithdrawal Limit Qualifying educational program At least 3 consecutive weeks long, 10+ hours/week First 13 consecutive weeks - $5,000 max. (after this, no limit) Specified educational program At least 3 consecutive weeks long, 12+ hours/month First 13 consecutive weeks - $2,500 max.

Beneficiary Attends Post-secondary Education Growth on grants/bonds Growth on your contributions Grants/bonds Your contributions EAP PSE To Beneficiary(ies) (for educational purposes only) To Subscriber (for educational purposes only) Not taxed taxed

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 any grants earned –CESGs can be used by a sibling (provided that the sibling has contribution room), otherwise all grant money must be repaid to HRSDC

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 roll over allowed is $50,000. –Or, taxed as income, plus an additional penalty tax of 20%. A T4A is issued to the subscriber Only allowed when the following conditions are met: –The subscriber is a resident of Canada –Payment(s) is made to individual subscriber(s) 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 * Earnings on grants/bonds & your contributions

Growth on grants/bonds Growth on your contributions Grants/bonds Your contributions AIP Back to you To government To your or your spouse’s RRSP To you or your spouse (non RRSP). Taxable, plus 20% penalty tax Beneficiary Does not Attend Post-secondary Education

Why a Counsel RESP? 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

Who is Counsel Portfolio Services? A portfolio services company that: provides investors with disciplined approach to investing for the long-term provides solutions that are efficiently diversified and effectively managed – automatically rebalanced maintains a strict adherence to independence in money management through research & due diligence, take an objective approach to hiring external investment specialists ability to replace a specialist who fails to meet criteria for their respective investment mandates

Who is Counsel? Portfolio composition based on objectives; Selection and oversight of our investment specialists; Independent accountability and review; Administration:  Automated portfolio rebalancing  One consolidated report  Easy online portfolio access  Consolidated tax reporting

Disclaimers 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: 10/15/2012