Financial ‘to do’s’ before the end of the year

Grandparents, parents, friends and family can contribute to RESPs (Registered Education Savings Plans) for children.

Grandparents, parents, friends and family can contribute to RDSPs (Registered Disability Savings Plans) for qualified disabled individuals.

A donation to an eligible charity can reduce annual income tax.

If you turned age 71 this year you must convert RRSPs to a RRIF (Registered Retirement Income Funds).

What is an RESP (Registered Education Savings Plan)?
A RESP (Registered Education Plan) is an incentive for parents, family and friends to save for a child’s post-secondary education.

RESP plans allow funds to be invested on a tax-sheltered basis until withdrawal. The result is the plan accumulates greater savings because of the tax deferral.

Withdrawals made from the RESP will be taxed in the student’s hands when the student [child] attends qualifying post secondary institution.

Contributions are NOT eligible for a tax deduction.

Contributions to a RESP may qualify for a grant. The basic CESG (Canada Education Savings Grant) is 20% of annual contributions up to a maximum eligible RESP contribution of $2,500 per year.  For example a contribution of $2,500 would be eligible for a grant of $400.

The lifetime limit for CESG is $7,200.

It should be noted, children 16 and 17 years of age can only receive CESG if at least one of the following two conditions is met:
• a minimum of $2,000 of contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary [child] before the year in which the beneficiary [child] attains 16 years of age; or
• a minimum of $100 of annual contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary [child] in at least any four years before the year in which the beneficiary [child] attains 16 years of age.

The bottom line: You must start to save in RESPs for your child before the end of the calendar year in which the beneficiary [child] attains 15 years of age to be eligible for the CESG.

For more information about RESPs and the Canada Education Savings Bond go to the Government of Canada website for further information.

What are RDSPs (Registered Disability Savings Plans)?
RDSPs, much like RESPs (Registered Education Savings Plans), allow funds to be invested on a tax-sheltered basis until withdrawal. It is intended to help parents and others save for the long-term financial security of a child with a disability.

The disabled person must be eligible for the disability tax credit. If for any reason, the disabled person is likely to recover or be periodically disabled before receiving the RDSP benefits, it may not worthwhile to contribute to an RDSP.

Like RESPs, contributions to an RDSP will be eligible for a new savings grant, known as the Canada Disability Savings Grant.

In addition the Canada Disability Savings Bonds (CDSBs) has been introduced to augment the funds of RDSP for families of moderate and low income.

Anyone can contribute to an RDSP. Lifetime contributions cannot exceed $200,000, however there is no annual limit. Contributions are permitted until the disabled person attains the age of 59.

As of the Federal Budget of 2010, parents and grandparents will be able to roll their RRSPs and RRIFs on a tax deferred basis into the RDSP of a financial dependently, disabled child or grandchild.

Depending on net family income, annual RDSP contributions will receive ‘grants’ (CDSG) at 100, 200 or 300% of the contribution until the disabled person attains age 49. The maximum lifetime ‘grant’ (CDSG) limit is $70,000.

Note: To qualify for the annual grant, contributions must be made to the plan annually.

Low and modest-income families may qualify for up to $1,000 per year. The maximum lifetime ‘bond’ (CDSB) limit of $20,000 will not be contingent on contributions. However, to receive the maximum annual $1,000 ‘bond’ (CDSB) the family net income cannot exceed $20,883. Smaller amounts of the ‘bond’ (CDSB) will be available for those families with a net income between $20,883 and $37,178. An RDSP will be eligible to receive the ‘bond’ (CDSB) until the disabled person attains age 49.

The Tax Benefits of Charitable Donations
A gift donated to registered charity may be eligible for a charitable tax credit. Often a charitable gift is used to redirect tax dollars to a specific cause. Planned charitable gifts represent a large portion of many charities’ annual revenue. These gifts pay for much needed research, public assistance and community support.

The federal tax credit for charitable donations is equal to (based on 2010):
• 15% of the first $200
• 29% of the balance.

The limit for an annual charitable gift is 75% of net income.

Donating publicly listed securities, mutual funds or segregated funds to a registered charity offers tax advantages over donating cash.  For more information consult your Professional Advisor.

Age 71 before the end of the year… Time to change your RRSP to a RRIF
A RRIF (Registered Retirement Income Fund) converts a RRSP (Registered Retirement Savings Plan) into a tax deferred income plan.

The conversion from RRSP to RRIF is mandatory at age 71.

While you may withdraw any amount of income from a RRIF, there is a mandatory minimum amount that must be withdrawn annually.

The rules regarding investments, self- administered plans and transfers between plans are essentially the same as the RRSP rules.

For more information regarding RRIFs and RRSPs consult your Financial Advisor.

In conclusion, if you have children or grandchildren under the age 16, be sure to contribute to an RESP. If you are opening a new RESP, you will need to apply for a Social Insurance Number for your child, if you don’t have one already. With respect to RDSPs, be certain your disabled child has qualified for the disability tax credit before opening a RDSP.

With so many government cutbacks, charities are becoming more dependent on your donations. The tax incentives for donations effectively result in the redirection of your tax dollars to a charity. A win win!

Finally, if you turned 71 this year, and you own RRSPs, you are required to convert your RRSP to RRIF (Registered Retirement Income Fund) and withdraw the minimum amount required before Dec. 31.


Did you enjoy this article? If so, you may consider becoming a Voluntary Subscriber to the Beach Metro Community News and help us continue providing the community with more local content such as this. For over 40 years, our staff have worked hard to be the eyes and ears in your community, inform you of upcoming events, and let you know what and who’s making a difference. We cover the big stories as well as the little things that often matter the most. CLICK HERE to support Beach Metro News.

Click here for our commenting guidelines.

Leave a Reply

*