Contents

• RESP - Registered Education Savings Plan;
• CESG - Canada Educational Savings Grant;
• Education Costs;
• Self-Directed RESP;
• Pooled Group Scholarship Trust Plans;
• Pooled Individual Trust Plans;
• Global Educational Trust Plan;
• New Government Initiative;
• Canada Learning Bond;
• How to calculate Grant and Canada Learning Bond;
• List of companies, eligible for Grant and Canada Learning Bond.

The other major advantage of a RESP is that a certain amount of contributions to a Plan are eligible for the Canada Education Savings Grant (CESG).

The CESG is available for up to $7,200 from the government for each child and this combined with the resulting compounded tax sheltered income while in the RESP can total to over a $15,000 boost from this source. Almost all financial advisors and other authorities involved with financial planning recommend that a family invest for post-secondary education through RESPs.

RESP Facts:

A contribution period within 21 years can be chosen.

The duration of a Plan can be for up to 25 Years from Application Year.

Before 2007 yearly contributions was up to $4,000 per child to a lifetime maximum of $42,000.

From 2007 there is no more limit to yearly contributions and a lifetime maximum has been increased from $42,000 to $50,000.

There is no age limit for being nominated for the benefits of a RESP.

Recognized universities, colleges, trade schools, technical institutes in Canada as well as outside of Canada are acceptable for Qualified Student studies. Generally, a 3 or 13 week course or longer qualifies for education funds.

In 1998 the Federal Government introduced the Canada Education Savings Grant. Families, who invested in RESPs for education, were eligible to get 20% added to their yearly contributions. From 2007 the amount of yearly contributions, eligible for 20% addition, hfs been inrcreased from $2,000 to $2,500. The CESG maximum is $7,200 per child through the life of the plan.

A feature that is not very well known by "would be" RESP contributors is "Carry Forward Room".

If a child was living in Canada he began to accumulate contribution room whether or not he had a RESP. This means that unused grant for each year is potentially $400 for $2,000 (from 2007 - $2,500) contribution and can be used in future years. The maximum CESG that can be received in one year from 2007 is $1,000 because of the $5,000 contribution limit. Parents with children of age 15 and a few years younger should especially maximize on this feature by maximizing their RESP contributions.

RESPs in existence for children at ages 16 and 17, require certain conditions to be met in order to receive the CESG for their RESP. The government conditions are: that in the year that a child turns 16 or at any time before, RESP for the child must have either contain a minimum of $2,000 (and not withdrawn) or $100 invested in any 4 years (and not withdrawn).

What if I have young children?

The effects of compounding interest will certainly help families planning and contributing early. Future education costs require early continued investing to meet costs that may exceed $100,000 at the time that young children are ready to be University or College students.

There are regional differences across Canada as some provinces regulate tuition fees with moderate or low indexed increases, however, education costs in professions such as Law and Medicine and for other courses for which Tuition Fees have been deregulated - costs can easily double the average.

Annual Education Costs and Expenses:

Sources:

1. "University tuition fees", The Daily, Statistics Canada Web site, Sept. 2, 2004.
2. "The Bottom Line", Maclean's Guide to Canadian Universities '05, Feb. 2005: pg. 52, 57-58.
3. "The Education Cost Calculator", Can Learn Web-site (www.canlearn.ca), Canada Student Loans Program Directorate, Human Resources and Skills Development Canada, Feb. 3, 2004.

These expenses are part of the cost of providing your children an education, up to $15,522 or more for one school year. So, if your children were to attend university today for four years of studies, the cost could be over $62,000 per child.

Would you be ready to cover the real cost of education?

Visit the federal government "Can Learn" Web-site mentioned above to calculate your own student's potential costs today.

Yes, a RESP is a good idea, but which one?

The Ontario Securities Commission created a brochure to help consumers to understand the different types of RESPs and to be aware of important considerations in order to find the suitable RESP.

You can click on your computer internet www.osc.gov.on.ca. for comparisons of the 3 types of RESPs.

The following three paragraphs offer a review of the OSC Brochure information. Some examples have additional information. The review contains opinions of the reviewer. The reader is advised to visit the OSC website for their information.

The Plans usually have no restrictions other than the government guidelines. Investments are composed of selections made by the investor and can range from lower return but secure investments, stocks and/or mutual funds that can have elements of risk associated with them or a mixture of both.

For Self-directed RESPs based on fluctuating stock or fund values, it is imperative that an advisor’s time and/or the dedicated time of the investor is taken to review and balance risk, returns, and timing for use of funds.

Going the secure route in a Self-directed RESP usually means that the limitation of $5,000 maximum annual contributions and the limited time horizon for longer term investing as funds are required means that larger scale investing advantages cannot be maximized by a sole investor.

Self Directed RESPs maybe as simple as a bank account or GIC which has deposits guaranteed but may not provide a sufficient return for accumulations necessary at the time of education.

Mutual funds or Stocks may experience fluctuations that would be difficult for investors to be pleased with year after year. Changes from one fund to another may be costly and timing for the withdrawal of education funds when needed is an issue that requires careful monitoring by an investor.

Self-directed RESPs are for investors who wish to take their own route and have many choices of investing available and will be able to live with their decisions.

Group refers to all investors sharing in the investments on the basis of pooling funds together and having the amount of investment that is available for a student determined by that student’s education qualification and completion. Failure means forfeiture of income which goes to the Group of students who meet the requirements.

Restrictions exist on changing beneficiaries and there is no RRSP rollover when scholarship payments have started. A investor in a Group scholarship plan is at risk of getting no return on their investment.

There can be problems for Plan holders belonging to a Group scholarship plan if they are unable to continue paying for their Plan which can involve loss and forced discontinuation.

Costs are front end loaded and early withdrawal can mean a loss of some contributions. There is the reward of partial enrollment fee return if education is partially completed and complete enrollment fee return if the Qualified Student advances to the required 4th year course.

The investments are regulated by Canadian Securities Administrators and are for the most part are in federal and provincial Government bonds providing the benefit of security. There is Professional investment management that uses longer term and large scale investing advantages which usually means a higher return for individuals than if they invested elsewhere with the same safety.

Pooled Group Scholarship Plans have restrictions although most offer a change to some form of Non-Group Status as an opting out provision. The change offered is at the cost of forfeiture of enrollment fee return which can mean thousands of dollars. Some companies also have a higher management fee that is imposed for those plans of subscribers who required the change. The higher management fee of 0.5% to 1% more can mean thousands of dollars to plans that have accumulated education fund and are ready to pay out.

Restrictions that belong to Group Scholarship Plans make them a gamble but if Subscribers are sure that their children will complete a 4 year education course without excessive interruptions or repetition of course study years then they should take advantage of gaining the forfeitures of the unfortunate subscribers and nominated Students who lost all or part of their income.

Plans with a Scholarship Plan Dealer where contributions are pooled under Professional Investment Management on a large scale for longer terms and higher returns than if invested individually elsewhere with the same safety.

Unlike Group Plans the individual accounts are independent of any other subscribers so that payments to the plans can be individually adjusted without meeting Group obligations of deposit continuation.

Every Qualified Student may use the education funds for their particular circumstances for their education. Flexibility exists to stop or start education or for the change of beneficiary (nominee) which can be exercised for different reasons within the 25 years. There are no additional rules other than the government requirements for RESPs.

There are no forfeitures to other students. The option to change beneficiaries is unrestricted and always available. The choice to use income for a RRSP rollover for a subscriber’s own or spousal RRSP is available at all times if there is no education pursued or continued by a student.

Investments are regulated by the Canadian Securities Administrators and for the most part are invested in provincial and federal government bonds providing the benefit of security.

The sales fees are front end loaded and loss of deposits may occur if Plans are terminated early.

A Pooled Individual Trust Plan has flexibility without restrictions and worry free investing with predictable results.

The above three paragraphs refer to the OSC Brochure and are a review and commentary of the analysis. For exact OSC information please see the web site www.osc.gov.on.ca.

The Global RESP is a Pooled Individual Trust Plan that has many flexible and client friendly features such as:

• Safety of Net Capital Deposits.
• No age restrictions upon Nominee enrollment.
• Change of Nominee is available at any time and can be anyone at any age.
• Students may take time off between courses or change their course of study without penalty.
• Flexible timing and availability of education funds for students is individually based.
• Amount of funding can be chosen individually within government guidelines.
• RRSP rollover option is always available within government guidelines so that a subscriber will never forfeit income from their RESP but will be able to use income for their own or a spousal RRSP if there is no education funding.
• The Global RESP does not impose any education qualifying rules in addition to those specified by the government.

Consider the flexibility of the individual Global RESP which may not be provided by Group Scholarship RESPs:

• The right to substitute another child at any age during the pay out period.
• The right of a subscriber to use income earnings for a RRSP ROLLOVER (AIP).
• The right of a subscriber to retain any income earnings (AIP).
• The right to choose when to have savings returned.
• The right to choose the individual timing of pay out for the students education.
• The right to choose the amount of income paid for a student’s education.
• The right to have, in every instance, full use of the plan for 25 years.
• The right to change courses of study and qualify for pay outs without company restrictions.
• The right to repeat an academic year and still be able to draw funds to pay for it.
• The right to choose the type of education, whether shorter or longer, and have complete use of earned funds and complete use of CESG.
• The right of a subscriber to use the earned income for their own education purpose.

Government provides a great support to those, who has RESP, and especially to parents witn children, who were born in 2004 and later.

Benefits support mainly families with low and medium income.

1. CESG

In 1998 the Federal Government introduced Canada Education Savings Grant (CESG) for the families, who want to save money for their children’s education.

Families, who invested in RESP, were eligible to get 20% ($400) on the first $2,000 of contribution.

From 2007 families, who invested in RESP and are eligible for 20% addition, get $500 on the first $2,500 of contribution.

• Starting January 1 2005 maximum Grant for families with yearly income $37,178 and lower is $600 per year (first $500, invested in RESP, will get you Grant equal 40% of invested amount ($200). Next $2,000 will get 20% (or$400) as it was before.
• Maximum Grant for families with yearly income from $37,178 to $74,357 is $550 per year (first $500, invested in RESP, will get you Grant equal 30% of invested amount ($150). Next $2,000 will add 20% (or $400) as usually.

• There is no changes for families with yearly income of $74,357 and higher. They are still eligible for 20% Grant on the first $2,500, invested in RESP during the current calendar year.

Children, who were born after December 31, 2003 are eligible for up to $2,000, allocated by Federal Government.

• All allocated amount is going to RESP.
• Only families with low income(less than $37,178 per year) are eligible for CLB, i.e. families, qualified for National Child Benefit (NCB)
• Here is how it works:
  • If your family’s yearly income is less than $37,178 (self-employed should consider their net income) the government transfers $500 for every newborn child on a new RESP, opened at his/her name, and an additional $25 in recognition of the cost of establishing. Thereafter, until the child’s 15th birthday, $100 is transferred to this RESP each year, when family’s income is less than $37,178. Maximum you can get is $2,000.
  • If your family’s yearly income greater than $37,178, you are not eligible for $500 at a birth of a child. But, in future, if your income became lower than $37,178, government will transfer $500 to your RESP and you will be eligible for $100 (per year) installments as long as your income remains in that range.

The value of the RESP changes

$500 RESP contribution per year

$1,000 RESP contribution per year

$2,000 RESP contribution per year

Income ranges are correct for 2007 and may change depending on inflation in subsequent years.

Not every company, which opens RESP, is eligible for Grant and Canada Learning Bond, but you can check that on the Government website. The dot against the company’s name means that this company is eligible for CESG and CLB.

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