Breaking News: RESP Contributions To Become Tax Deductible?


Thanks to reader Nicolas for providing a gentle nudge to write a post on a private members’ bill that was passed last night that would allow Canadians to deduct contributions to RESP plans (Registered Education Savings Plans). The bill (which is not final), proposes that contributions up to $5,000 per year (and up to a lifetime maximum of $50,000) be deductible from the contributor’s income.

babyeinstein.JPGI have not found anything that indicates whether the CESG (Canadian Education Savings Grant) would still be awarded but my guess is that since there is stiff opposition to this bill (from the Conservative Party), the grant would be eliminated. Fingers crossed for both though! :)

For an Ontarian in the highest tax bracket, an annual $5,000 contribution to an RESP would yield  $2,320.50 in tax savings. Also, this program could be of benefit to older Canadians as it would provide an incentive to go back to school. Currently, the CESG is not available for adult Canadians themselves (only children), but you can actually set up an RESP for yourself now if you want to take advantage of the tax sheltering. If RESP contributions become tax deductible, then this opens up some new possible planning strategies and renders the RRSP Lifelong Learning Plan all but obsolete.

You can read more on this story through the following links:

Globe and Mail
Ottawa Citizen/National Post
Dan McTeague’s Website (The MP who put forth the bill)

 

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • NIcolas

    Thanks for the mention.

    Canadian Capitalist also got this one out on his blog. It seems to have flown under a lot of news websites. Perhaps we’ll hear more of it tomorrow.

    I say we all call our MPs and tell them what we think.

    But one thing still remains. If passed, the next question is: will be will it be applied?

    Nicolas

  • Traciatim

    I wonder if this happens will the deduction be above line 236 on the T1 forms making the line 236 affected by the change. This would mean that the GST cheque and the baby bonus would then be changed as well. This means people can get guaranteed returns by reducing their income rather than relying on investments for people in the lower income ranges.

  • Preet

    Good point Traciatim – there are many details that would need to be ironed out (or disseminated), including what affects this will have on the CESG.

    Higher income Canadians will benefit most, and this might not be equitable, and a source of debate.

    This will be an interesting story to watch from many angles…

    I agree with you Nicolas – if we want our voices heard, we need to call our MP’s. Every little bit helps.