When you want to access the CESG and income generated by the RESP, though, things get a little more involved. "It requires a bit of stick-handling," says Adrian Mastracci, of KCM Wealth Management Inc., in Vancouver.
This pool of money will provide educational assistance payments (EAPs) to your child. "Think of it like converting your RRSP to a RIFF," says Mastracci. "Your RIFF pays you a certain amount and at the end of the year, you get a T4 RIFF for that amount and declare it on your income tax.
"With the RESP, your plan administrator will write a cheque to your kid, and at the end of the year the child will get a T4 RESP for that amount, which they must declare on their income tax."
You can take as little as you want or nothing at all from this taxable pool of money. Whatever you don't withdraw stays in the plan and continues to grow tax-free.
The ABCs of EAPs
But if that doesn't cover all of your child's costs, you can still withdraw some of your capital from the plan. And if your needs exceed even that, the financial institution that administers your plan can write to the minister of Human Resources and Skills Development Canada on your behalf, requesting you be able to take a larger EAP.
Benson has never seen such a request and cautions that you'd need a compelling case. "If your child was going to school in the U.S. and tuition was US$20,000 and you had no other assets, for example, we might be able to make a case for that," she says.
But you can make multiple withdrawals during the year, so after your child has been in class for the requisite 13 weeks, you can make other withdrawals to cover room and board or travel expenses or what have you.
Benson says you can also register for a systematic withdrawal plan at most financial institutions. It's a way to have payments made on a regular basis to your child's bank account. Payments can be made monthly, quarterly or twice a year. Just be prepared to prove to your bank every few months that your child is still enrolled in a qualifying program.
Post-secondary education comes with some big up-front costs: tuition and residence fees usually need to be paid before the first class or night spent in the dorm room. "But you can collect your EAPs before paying your tuition," says Benson.
The government stipulates that financial institutions must follow "due diligence" to ensure RESP funds are being used for a child's education. "That means that different institutions can require different forms of proof," says Benson.
Your bank may want to see a copy of your child's acceptance letter before releasing funds or they may take you at your word. It's a good idea to keep all documentation and receipts.
Withdraw non-taxable income in a year when your
child works part-time
The point of using an RESP is to transfer taxable income into the hands of your child who will, presumably, be in a lower tax bracket than you.
Let's say your daughter will be working part-time while in school and full-time while at home for the summer. She will have $10,000 of taxable income to declare.
"You can give the non-taxable income [your contributions] to the child that year, and save the taxable income for a year when she won't be working," says Benson.
But not all expenses are as obvious. What about a new computer, cell phone or Internet connection? Or a fancy knapsack and new pair of loafers?
According to the CESG information line (1-888-276-3624), financial institutions determine what constitutes an education expense. In theory, then, that cell phone might be fair game if your plan is with TD Canada Trust, but not if it's with Royal Bank. Chances are those loafers will be a tough sell no matter who administers your plan.
Jasmine Miller is a writer based in Toronto.
|-- Posted: April 30, 2004