FP Week 13- Education Savings (RESP) & Leasing a Car

Why is early education planning essential?

Rising education costs increase student debt; planning early allows structured savings to cover tuition, books, housing, and living expenses.

What is the average tuition in Canada for general programs?

~$6,500–$7,500/year.

What is the most important funding source for post-secondary education in Canada?

RESP – offers tax-deferred growth and government grants (CESG/CLB), making it the most effective savings tool.

Name other education funding sources besides RESP.

• Student loans

• scholarships/bursaries

• personal savings

• employer subsidies

• TFSA

• non-registered accounts

• informal trusts

Key advantage of using RESP over TFSA or non-registered accounts for education?

Grants (CESG/CLB) + tax-deferred growth specifically for post-secondary education.

Which education-related expenses provide tax benefits?

• Student loan interest is tax-deductible

• tuition tax credit can be transferred to parents/grandparents

Which education tax credits were eliminated after 2016?

Education and textbook credits.

Define RESP.

• Tax-advantaged savings plan for post-secondary education with government support

• Contributions grow tax-free

• withdrawals taxed in the student's hands

Are RESP contributions tax-deductible?

No, contributions are NOT tax-deductible.

What is the RESP lifetime contribution limit per child?

$50,000 per child; no annual limit.

Who are the parties in an RESP?

• Subscriber: opens plan & contributes

• Promoter: financial institution managing plan

• Beneficiary: student receiving funds.

Compare the types of RESP plans.

Family: multiple related beneficiaries; flexible allocation. Individual: one beneficiary; flexible; no relationship required. Group (Pooled): fixed contributions; high fees; provider controls investments. Earnings forfeited if child does not attend school.

What is the basic CESG?

• 20% government contribution on annual RESP contributions

• max $500/year

• $7,200 lifetime

How does the CESG carry forward work?

Unused CESG accumulates; max $1,000/year (current + carry forward).

What is the additional CESG?

Extra 10–20% on first $500 of contributions for lower-income families.

What is the “Age 16–17 rule” for CESG eligibility?

Must have before age 15:

• Total contributions ≥ $2,000 OR ≥ $100 in 4 years AND funds remain in RESP

• If not met → no CESG at 16–17

What is the Canada Learning Bond (CLB)?

• Government grant for low-income families

• max $2,000

• no contributions required

What are the types of RESP withdrawals?

PSE (contributions, NOT taxable) and EAP (earnings + grants, taxable to student).

What are the withdrawal rules for a qualifying program?

Program ≥3 weeks and ≥10 hours/week; first 13 weeks: $8,000 full-time, $4,000 part-time.

What happens if the child does not attend post-secondary school?

• Contributions returned tax-free

• CESG + CLB returned to government

• earnings forfeited or penalized

What are the options for leftover RESP funds?

Transfer to RRSP (if room), withdraw (tax + 20% penalty), donate to educational institution.

How long can an RESP remain open?

Up to 36 years.

Compare RESP, TFSA, and non-registered accounts.

RESP: Tax-deferred growth, education-only, grants available. TFSA: Tax-free, flexible use, no grants. Non-registered: Fully taxable, flexible, no grants. Informal Trust: Some tax splitting, child owns funds at 18.

What is a vehicle lease?

Contract to use a vehicle for a fixed period without ownership.

Advantages of leasing a car?

Lower monthly payments, smaller down payment, newer cars, often under warranty.

Disadvantages of leasing a car?

No ownership, mileage limits, continuous payments, expensive to exit early, higher total cost long-term.

Advantages of buying a car?

Full ownership, lower total cost long-term, can sell anytime.

Disadvantages of buying a car?

Higher monthly payments, maintenance costs.

Financial comparison of leasing vs buying?

Leasing: cheaper monthly, higher total cost (~$62,400, no ownership). Buying: higher monthly, lower total cost (~$50,500, ownership).

When is leasing better vs buying?

Leasing = cheaper short-term (lower payments). Buying = cheaper long-term + asset ownership.

CESG formula and limits?

CESG = 20% × contribution. Max $500/year, $7,200 lifetime. Carry forward allows up to $1,000/year.

RESP contribution limit?

$50,000 per child (lifetime), no annual limit.

Withdrawal limits for first 13 weeks?

Full-time: $8,000; Part-time: $4,000.

Age 16–17 rule for CESG?

Total contributions ≥ $2,000 OR $100 in 4 years before age 15.

Difference between PSE and EAP?

PSE: contributions, non-taxable. EAP: earnings + grants, taxable to student.

Scenario: A 17-year-old has $1,500 contributed over 3 years. CESG eligibility?

Does NOT meet age 16–17 rule (needs ≥$2,000 total OR $100 in 4 years). No CESG for 16–17.

Scenario: RESP contributions = $7,000 this year. How much CESG received?

CESG = 20% × $7,000 = $1,400 → capped at $1,000/year (max with carry forward).

Scenario: Should you lease or buy if monthly budget is tight but total cost matters?

Lease: lower monthly payments; Buy: cheaper total cost + ownership. If total cost matters → buy.

Scenario: Student withdraws $5,000 PSE and $2,000 EAP. Tax implications?

PSE $5,000 → not taxable. EAP $2,000 → taxable to student (likely low tax rate).