The 2007 federal budget proposes several measures to provide more flexibility to families who utilize registered education savings plans.
Ottawa plans to eliminate the $4,000 annual RESP contribution and increase the lifetime RESP contribution limit to $50,000 from $42,000.
“The removal of the annual contribution limit will provide a new opportunity – not previously available – to make a lump-sum fund an RESP for parents who now have the means to do so,” says Jamie Golombek, vice president of taxation and estate planning at AIM Funds Management Inc. of Toronto.
As a result of the lump sum fulfilling the lifetime maximum limit, says Golombek, it may mean giving up the Canada Educational Savings Grants on annual contributions. But depending on factors such as the child’s age and the outstanding contribution timeframe, the benefit of tax-deferred compounding may outweigh the foregone grants, he says.
The maximum annual RESP contribution qualifying for the 20% CESG will be increased to $2,500 from $2,000. That translates into an increase in the maximum CESG to each beneficiary for 2007 and subsequent years, to $500 from $400.
The maximum CESG for a year will increase to $1,000 from $800 if there is unused grant room because of contributions of less than the maximum CESG-eligible contributions for previous years. The $7,200 lifetime CESG limit will be unaffected by this change.
It should be noted that although these changes will apply to contributions made after 2006, the portion of any CESG entitlement will be paid only after Royal Assent is given to the enabling legislation and the delivery system is put in place.
Meanwhile, Ottawa is also proposing to provide part-time students access to RESPs. Existing rules require that at least 10 hours a week be spent on courses. Budget 2007 proposes to require at least 12 hours per month be spent on courses.
Under this proposal, students 16 years of age or older will be able to receive up to $2,500 for each 13-week semester of part-time study.
Ottawa is also moving ahead with a promised exemption to exclude scholarships and bursaries that are provided to attend elementary and secondary schools from the calculation of a student’s income. Previously, any amount over $500 was included in income. This measure will apply for the 2007 and subsequent taxation years.
Ottawa revises RESP regime
Eliminates annual contribution limit and raises lifetime limit
- By: Stewart Lewis
- March 19, 2007 March 19, 2007
- 15:35