RESP (Registered Education Savings Plan)
One of the most important lessons of your children's education is one that you have to learn - and the sooner you do, the better. Post-secondary education will make a big difference to your children's earning potential and standard of living. In fact, Canadians with a secondary-school graduation certificate earned an average of $22,846, while those with a university degree earned almost twice as much - $42,054. (Statistics Canada, 1996 Census. Yet, government funding to universities is dropping, and post-secondary institutions are making up the shortfall by raising student fees. Unless you start setting aside education funds for them now, your children face the possibility of crippling debt upon graduation or, even worse, the lost opportunity to attend college or university.
The most important thing to remember is that the concept of an RESP is halal. The difference is that you have to insure that the investments used inside an RESP meet the Islamic Criteria. If they contain fixed income investments that are guaranteed like government bonds, etc. like most education plans promoted by foundation or trusts do, they contain RIBA and are thus, HARAM. Make sure investments meet ISLAMIC CRITERIA before opening an account for your RESP, RRSP, or just a regular open investment account.
Serving clients in -> Alberta - British Columbia - Nova Scotia - Ontario
General RESP Questions
What are the maximum annual and lifetime contributions allowed for an RESP?
There is an annual maximum contribution limit of $4,000 and a lifetime limit of $42,000 per beneficiary. However, it really makes little sense to contribute more than $2,000 per year per child as the maximum grant is $400 per year. You are better off opening an in-trust account for any amounts over $2000 per year. Call for details.
Can I use in-trust funds to open an RESP?
Individuals considering the closure of a trust or withdrawal of trust funds for the purpose of re-contributing these assets into an RESP are strongly advised to contact their Canada Customs and Revenue Agency Tax Services Office to discuss the tax implications of this transaction.
Can funds in an RRSP or RRIF be transferred into an RESP?
The Income Tax Act does not permit the direct transfer of funds from either an RRSP or a RRIF to an RESP.
Is it necessary to open an RESP now to earn CESG contribution room?
Starting January 1st, 1998, each child who is a resident of Canada began to accumulate grant contribution room regardless of whether or not the child is a beneficiary under an RESP. For example, if a child is born in 1998 but no RESP is opened for the child until the year 2001, the child will have accumulated a total of $8,000 ($2,000/yr x 4) in grant contribution room by the year 2001. The maximum grant that can be received in any year is $800.
Is it possible to have a joint RESP account?
Yes, spouses and/or common-law partners are permitted to be joint subscribers under an RESP. However, some RESP contracts may not permit joint subscribers.
Can a subscriber stop making contributions and resume at a later date?
In general, legislation governing RESPs and the CESG does not require any particular pattern of contributions. However, specific RESP contracts may have such rules.
How many years can contributions be made to an RESP, and how long can income remain sheltered in the plan? Does this depend on the age of the beneficiary?
In the case of a non-family plan, contributions can be made up to and including the 22nd year of the plan's existence. The family plan is a little more restrictive in that contributions must stop in the year on the beneficiary's 21st birthday. Both types of plans must be terminated no later than the 26th year. Depending on the type of plan, the age of the beneficiary is relevant.
Can a subscriber transfer from one RESP to another RESP?
Subject to the terms of the plan, partial or full transfers are permitted under the Income Tax Act. The transfer of an amount from an RESP to another RESP is considered eligible for CESG purposes if there is a common beneficiary between the originating plan and the receiving plan; or a beneficiary under the receiving plan is under 21 years of age, and is a brother or sister of a beneficiary under the originating plan. Otherwise, the CESG must be repaid and an over-contribution tax may apply.
This is not intended to be an exhaustive source of information; just a general guide. More information can be obtained on the web at CRA's website or you can contact Jaafer Syed where you can benefit from his over 15 years of experience in North American and International investing and tax planning
Jaafer for 10 years out of the last 15 years has been the only mainstream investment specialist in Shariah-Compliant Investing and Finance. Receive the professional unbiased advice you deserve from Jaafer Syed of W.H. Stuart & Associates, managing over $4 billion on behalf of over 100,000 clients throughout Canada and the U.S.