By Peter Lewis
As usual, you got your income tax return duly postmarked before midnight on April 30th. And now, you’re checking the mail with a little more interest each day, waiting for that brown “Government of Canada” envelope to arrive, with that yellowish piece of paper appearing in the window… the one with your name on it. And inside, that yellow paper turns out to be: a nice, fat cheque!
A gift from the Canada Revenue Agency? No, in fact, it’s just your money, being returned to you after the Government has “borrowed” it from your overpaid taxes for several months. But who cares… it’s a nice little windfall, and you’re already thinking about just how you’re going to spend it.
May we suggest you hold on for just a second? Before you plunk that cheque down on something you don’t really need, why not think about putting it to better use for some other people you love – like your children, or grandchildren, or even nieces or nephews?
Why not consider starting (or contributing to an existing) Registered Education Savings Plan for those kids?
You’re probably well aware of what RESPs are. But if you haven’t got one started, here’s why you should:
- According to Statistics Canada, the national average of university tuition fees alone (not including residence and other costs) is nearly $4,400 in Canada today. That the cost can go up to more than $14,000 per year, when residence and other expenses are added. At a 5% rate of escalation, those tuition and living expenses could increase to a total of over $120,000 for a child born today, and enrolling in a four-year university program in 2024!
- It’s certainly no secret that post-secondary education has become a much greater priority for Canadian students over the last several years. A 2002 study by Human Resources Development Canada estimated that more than 70 per cent of new jobs created in Canada now require some form of post-secondary education.
Fortunately, the opportunity to pursue college or university studies has been made more accessible, and the economic burden reduced, by the existence of RESPs and the government programs that supplement them.
For those who aren’t familiar, there are two types of RESPs – so-called “individual” plans which you can open at a bank or financial institution, and manage on your own; or group plans, which “pool” your contributions with other contributors’ into a large trust. Both types of plans invest your money, and income tax on any earnings is deferred until the student (beneficiary of the Plan) starts his or her post-secondary education. An RESP may not pay all the eventual costs of a four-year degree, but with regular contributions over a number of years, it will certainly make the expense far more manageable.
It’s easy to get an RESP started. You can do it with a small contribution – or, with a good portion of that 2006 income tax refund! Or, if you’re a family that qualifies for the National Child Benefit Supplement, you may be able to start a plan simply by using a $500 Canada Learning Bond, provided by the federal government.
And if you contribute to an RESP, you may also receive the Canada Education Savings Grant (CESG). Over the full term of an education savings plan, the CESG could provide as much as $7,200 in additional savings.
If you live in Alberta, there are additional provincial grants that you can take advantage of… and an education tax credit is expected to soon be available to residents of Quebec.
For more details on all of the grants and options, it’s best to talk to your financial advisor, or an RESP sales representative. You can also visit respdac.sidetrail.com for more information on group plans.
But do your due diligence before you cash that tax refund cheque. If you use it wisely now, and apply it to RESPs for the little ones in your family, the real value of that money will hit you when they walk through the doors of college or university, a few years from now… thanks to your educated decision today!
Peter Lewis is Chair of the Registered Education Savings Plan Dealers Association of Canada.