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RESP Questions and Answers Guide

Table of Contents

Definition of Terms 2

What is an RESP? 5

Types of Plans 6

Contributions 7

Subscribers 9

Beneficiaries 10

Investments 12

Educational Assistance Payments 13

Accumulated Income Payments 15

Canada Education Savings Grant 17

Closing an RESP 20

The SMI RESP 21

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Definition of Terms

Accumulated Income Payment (AIP)"Accumulated income payments" are payments to the subscriber out of an RESP’s investmentearnings, including earnings on the Grant. An AIP can only be made if the plan has been inexistence for 10 years; all beneficiaries have reached age 21; no beneficiary is attending school;and the subscriber is resident of Canada. These conditions may be waived under certaincircumstances (e.g. deceased or mentally impaired beneficiary). AIPs are taxable income for thesubscriber and are subject to an additional 20 percent deferral tax, unless transferred to an RRSP.

Assisted ContributionsContributions made to an RESP after 1997 in respect of which a CESG has been or will be paid.

BeneficiaryA "Beneficiary" under a Registered Education Savings Plan is an individual named by thesubscriber who will receive Educational Assistance Payments if the individual qualifies for thesepayments under the terms of the plan.

Canada Education Savings Grant (CESG)“Canada Education Savings Grant" means a grant paid by Human Resources DevelopmentCanada to the RESP trustee for deposit on behalf of the beneficiary.

Educational Assistance Payment (EAP)An "Educational Assistance Payment" means any amount paid or payable under an RESP to orfor an individual (called the beneficiary) to assist with the individual's education at the post-secondary school level. These amounts do not include refunds of contributions made to thesubscriber of the plan.

Education Savings PlanAccording to the Income Tax Act, section 146.1(1), an "education savings plan" means a contractentered into at any time between an individual (in this section referred to as a "subscriber") and aperson or organization (in this section referred to as a promoter") under which, the promoteragrees to pay or cause to be paid educational assistance payments to or for one or morebeneficiaries.

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Grant Contribution RoomBeginning with 1998, each child under age 18 who is resident in Canada accumulates "grantcontribution room" at a rate of $400/yr to age 17 (includes year child turns 17). The grant roomaccumulates whether or not the child is currently an RESP beneficiary and any unusedcontribution room is carried forward.

Group RESP (a.k.a. Pooled Plans)Group plans are operated on a pooling principle where the beneficiary named under a contract bya subscriber will receive Educational Assistance Payments when enrolled in a qualifyingprogram, but if the beneficiary fails to qualify for payment, the earnings are distributed amongother beneficiaries of the same age who do qualify.

HRDCHuman Resource Development Canada. Government agency that runs the CESG portion of theRESP. RESPs are under the jurisdiction of Revenue Canada.http://www.hrdc-drhc.gc.ca

Post-Secondary Educational InstitutionA "Post-secondary educational institution" can be any of the following:a) A university, college, or other educational institution in Canada that has been designated forpurposes of the Canada Student Loans Act or the Canada Student Financial Assistance Act, or isrecognized for purposes of the Quebec Student Loans and Scholarships Act.b) An educational institution in Canada certified by the Minister of Human ResourcesDevelopment to be providing courses, other than courses designed for university credit, that givea person occupational skills or improve a person’s occupational skills.c) A university, college or other educational institution outside Canada that provides courses at apost-secondary school level, provided the beneficiary is enrolled in a course that runs at least 13consecutive weeks.

PromoterThe Promoter can be any person/organization offering a Registered Education Savings Plan tothe public.

Registered Education Savings Plan (RESP)A "Registered Education Savings Plan" is a contract between a subscriber and an RESP promoterunder which the subscriber makes contributions on behalf of a beneficiary and the promoteragrees to make Educational Assistance Payments to the beneficiary. The RESP is registeredunder the Income Tax Act.

Subscriber (a.k.a. contributor)A person who enters into an RESP contract with the promoter is the subscriber. The subscriberagrees to contribute to the contract on behalf of an individual named under t the plan as thebeneficiary.Note: If the plan permits, spouses can be joint subscribers. The subscriber must be a person.Therefore, a corporation, trust, church, or charity cannot be a subscriber.

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TrusteeThe Income Tax Act requires RESP funds to be held by a corporation licensed to be a trustee.The trustee is engaged by the promoter and can be the promoter itself. The CESG will beprovided directly to the plan trustee.

Unassisted ContributionsContributions made to an RESP in respect of which no CESG has been or will be paid.

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What is an RESP?

An RESP is a contract between an individual (the subscriber) and a promoter (i.e.ScotiaMcLeod). The subscriber makes contributions, on behalf of a beneficiary(s), for thepurpose of making educational assistance payments to the beneficiary.

How does it work?• Contributions are limited to $4,000 per year, per beneficiary to a lifetime maximum of

$42,000 per beneficiary.• Contributions may be made to the plan up to tend of the 21st year the plan is opened. For

example, if a plan is opened in May, 1999 the last contribution date is December 31, 2020.• The government will provide a grant of 20% on the first $2,000 contributed each year, for

each beneficiary aged 18 or less. There are special conditions that must be met forbeneficiaries aged 16 and 17 to receive a grant (see Q and A below for details).

• Once a beneficiary has begun attending an approved post-secondary educational institution,they can begin to withdraw the income earned from the contributions made to the plan. Theseare known as Educational Assistance Payments (EAPs).

• The principal (contributions) may be withdrawn by the subscriber at any time, but may resultin a repayment of the grant to the government.

• The plan must be closed by December 31st of the 25th year after being opened, e.g. an RESPopened in May, 2000 must be terminated by December 31st, 2025.

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Types of Plans

What is the difference between family and individual plans?An individual plan permits only one beneficiary per plan. The beneficiary can be anyone,including the subscriber.

A family plan permits more than one beneficiary per plan, but all beneficiaries must be related tothe subscriber by blood or adoption, and must be under 21 years old when named to the plan.The Income Tax Act defines “blood relationship” to be that of a parent and child, or otherdescendant such as grandchild or great-grandchild). Please note that nieces and nephews are notconsidered to be blood relations.

Can you transfer property between a family and an individual plan?Yes. You can transfer without tax consequences:• where the beneficiary is the same individual under both plans• when the beneficiary of the transferor plan is a sibling of the beneficiary of the transferee

plan

Other transfers may result in over-contribution penalty taxes, as the contribution history of thebeneficiary of the transferor plan will be assumed by the beneficiary of the transferee plan. Forexample, a transferor plan with a beneficiary with $35,000 in contributions being transferred intoa plan where the beneficiary has $10,000 in contributions will create an over-contributionamount of $3,000 as the lifetime contribution limit is $42,000.

Can the RESP be opened without a beneficiary Social Insurance Number (SIN)?An RESP will not qualify for the CESG until a SIN is submitted. Therefore, SMI will not openplans without a beneficiary SIN.

How do I get a SIN?Social Insurance Numbers are issued by Human Resources Development Canada, through theSocial Insurance Registry in Bathurst, N.B. You may obtain an application form at any HumanResources Centre of Canada (HRCC). Your local office is listed in the blue Government pagesunder HRDC, to obtain a copy of the SIN application form you can print it from the followingwebsites: English - http://www.hrdc-drhc.gc.ca/sin/download.shtml French - http://www.hrdc-drhc.gc.ca/sin/downloaf.shtml

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Contributions

What is the annual maximum contribution that can be made to an RESP?Subscribers may contribute up to $4,000 per year, per beneficiary.

When is the contribution deadline?Contributions must be made by December 31st and, unlike RRSP contributions, may not becarried forward to a subsequent year.

Are RESP contributions tax deductible?No, they are not tax deductible. Earnings in the RESP are taxed in the hands of the beneficiary,upon receiving education assistance payments.

Can RESP contributions be carried forward?No, RESP contributions cannot be carried forward like RRSP contributions. A contribution mustbe made by December 31st of any year. However, the CESG may be carried forward. Moredetails can be found in the CESG section of this document.

Can contributions be made “in kind” to an RESP?Yes, like an RRSP, you can contribute in kind to a self-directed RESP (the SMI RESP is self-directed). The securities are contributed at the fair market value and any resulting capital gainmust be claimed, but a capital loss is not deductible.

Do the contributions belong to the subscriber or to the beneficiary?Control of the subscriber’s contributions remains with the subscriber.

What is the contribution limit for a family plan with more than one beneficiary?The yearly contribution limit is always calculated on a per beneficiary basis, so for a family planthe subscriber may contribute up to $4,000 for each of the beneficiaries named to the plan.

Must contributions made to a family plan be allocated to specific beneficiaries?Every time a subscriber makes a contribution to a family plan, the subscriber must apportion thetotal contribution by specifically assigning amounts to specific beneficiaries.

What happens if more than $4000 is contributed for a beneficiary in a year?Over-contributions may arise if more than one RESP is opened for a beneficiary and the differentsubscribers are not aware of other contributions made. In this case, HRDC will notify thebeneficiary/custodial parent(s) and all the promoters (e.g. SMI) who hold an RESP for thebeneficiary. The promoters will then notify the subscribers. All subscribers will have 90 days tocorrect the over-contribution. If there is no response, HRDC will inform Revenue Canada atyear end of over-contributions. The current penalty enforced by Revenue Canada is a 1% permonth penalty tax on the subscriber’s share of the over-contribution.

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The tax on over-contributions is payable jointly by all subscribers contributing to plans for thesame beneficiary. The promoter does not withhold the tax or report the amount.

The subscribers must obtain the TIE-OVP, Individual Income Tax Return for RESP overcontributions from their Tax Services office and file it with Revenue Canada within 90 days ofthe end of the calendar year in which the over-contribution was made.

What is the difference between Assisted and Unassisted Contributions?Contributions that have triggered a CESG are considered to be assisted contributions, i.e.contributions which triggered a grant payment. For example, a contribution of $3,000 would becomprised of $2,000 of assisted contribution (earning a grant of $400) and $1,000 of unassistedcontributions (which did not earn a grant). Any withdrawals of contributions are consideredto be made first from assisted contributions (see CESG section).

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Subscribers

What is a subscriber?The subscriber is the person who enters into an education savings plan contract with the vendor.Neither trusts nor corporations are permitted to be a subscriber.

Are joint subscribers allowed?An RESP contract may have joint subscribers if they are spouses of each other.

If subscriber(s) are parents of beneficiary and divorce, are the RESP assets consideredcommon assets under the marriage and how will they be treated in this case?If one of the spouses was not an original subscriber to the RESP, The Income Tax Act permitsthat the person may become a subscriber following a division of property on a marriagebreakdown if that person has acquired the original subscriber’s rights under the plan under adecree, order or judgement of a competent tribunal, or a written agreement.

Does the subscriber have to be a Canadian resident for contribution purposes?No.

What happens on the death of a subscriber?A subscriber can provide in their will, for their estate to continue the RESP, which would allowthe beneficiary to receive payments from the plan while attending post-secondary school.

The subscriber can also name another individual as an alternate subscriber. The alternatesubscriber takes on responsibility for the RESP and can name new beneficiaries, etc. In a familyplan, the blood or adoption relationship will be in effect for any new beneficiaries that are namedto the plan (i.e. the new beneficiary must be related to the alternate subscriber and not necessarilythe original subscriber). The one difference with an alternate subscriber is that at the end of theplan, they cannot roll accumulated income into an RRSP - it must be taken as income, taxed attheir marginal rate plus a 20% surtax.

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Beneficiaries

What is a beneficiary?The beneficiary is the person designated by the subscriber of the RESP for whom contributionsto the RESP are made.

Who can be a beneficiary?There are no restrictions on who can be named as beneficiary on an individual plan, but in afamily RESP they must be related to the subscriber by blood or adoption (e.g. son, daughter,grandson, granddaughter). A subscriber can name themselves as beneficiary on an individualplan if they plan to further their education in the future.

Can a beneficiary be named on more than one plan? (e.g. both parents and grandparentsopen an RESP for same child).Yes, multiple RESPs may be opened for a beneficiary but the subscribers on each plan must beaware that the yearly and lifetime contribution limits are per beneficiary and not per plan.

What happens if the beneficiary does not pursue further education?Subscribers have four options in this situation:1) They can name a new beneficiary

2) They can donate the accumulate income to a post secondary educational institution oftheir choice.Investment income can be returned to the subscriber in the form of “accumulated incomepayments” (AIP) if the following conditions are met:• the plan has been is existence for at least 10 years,• all the beneficiaries are at least 21 years of age and not pursuing higher education, AND• the subscriber is resident in Canada

3) The subscriber can receive the AIP and choose to transfer it to their RRSP or a spousalRRSP, up to a maximum of $50,000.

4) The subscriber can receive the AIP directly, subject to the subscriber’s marginal incometax rate plus a 20% surtax. A T4A will be issued to the subscriber.

In all cases, contributions made to the RESP will be returned to the subscriber tax-free.

If the beneficiary named on an RESP dies and no other beneficiary is named, would theincome from the RESP be eligible for the transfer to the subscriber’s RRSP? If yes, whenwould this transfer be allowed to happen? (i.e. after 10 years?)Upon the death of a beneficiary, the requirement for a plan to be in existence for ten years andfor the beneficiary to be over 21 years of age may be waived, and the subscriber may make awithdrawal of an Accumulated Investment Payment according to all other normal rules governingan AIP.

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Does the beneficiary have to live in Canada for Contribution or Educational AssistancePayment (EAP) Purposes?There is no requirement under the ITA that the beneficiary be a resident in Canada in order tohave contributions made to an RESP on his/her behalf or in order to receive educationalassistance payments. There is a requirement for the beneficiary to be a resident in Canada at thetime the contribution is made in order to be eligible to receive the Canada Education SavingsGrant (CESG).

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Investments

What investments are eligible for a self-directed RESP?Prior to October 27, 1998 there were no restrictions as to RESP investments. As of October 27,1998, eligible investments for an RESP are similar to an RRSP, with a few exceptions.

Eligible investments include:• Mutual funds• Segregated funds• GICs• Shares listed on prescribed stock exchanges in Canada or a foreign country• Bonds and other debt obligations issued by the various levels of government or a Crown

corporation• Bonds and other debt obligations issued by a corporation whose shares are listed on a

prescribed stock exchange

Any investments acquired before October 28, 1998 are automatically considered qualifiedinvestments. Beginning in 1999, any non-qualified investments held in RESPs are subject to apenalty tax of 1% per month.

Are there any restrictions with respect to foreign content?There are no such restrictions. A client may hold up to 100% foreign content in their plan.

Where contributions are invested and there is a subsequent devaluation of the assets, whatwill be the order of priority when making EAPs if the contributions, the grants andearnings have all suffered a loss of value?The government will share to some extent in the risk of investment loss with the CESG. Losseswill first be considered to be recorded against the amount of investment income available, thenagainst the subscriber-contributed capital, If both of these sources are exhausted, the remaininglosses may then be applied against the CESG amount.

For example, if an account has received $10,000 in contributions and $2,000 in CESG over 5years. If in year six the value is $15,000, then $3,000 is considered to be income. If in yearseven the value of the plan dropped to $9,000 through market changes, then there would beconsidered to be $2000 in CESG, $0 in income and $7,000 in contributions.

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Educational Assistance Payments

What are the components of the Educational Assistance Payment (EAP)?An EAP is composed of the following:• earnings accrued on all contributions• earnings accrued on grants made to the plan;• and the grant itself.

Can the beneficiary withdraw contributions as part of an Educational Assistance Payment(EAP)?No. By definition (see subsection 146.1(1) of the Income Tax Act) an EAP specifically excludesa “refund of payments”.

What qualifies as an acceptable cost to further post-secondary education? Travel cost?Rent? Tuition?The definition of “educational assistance payment” states that any amount paid to an individualto assist the individual to further the individual’s post secondary education would be anacceptable payment from an RESP. It is a question of fact in any particular situation whether acost would be to further the individual’s post-secondary education. Costs must be reasonable inthe circumstances in order to be considered acceptable.

What would be considered a qualifying educational program?A student is considered enrolled in a qualifying educational program if the program runs three ormore consecutive weeks (13 consecutive weeks if the educational institution is outside Canada)and the student must spend 10 or more hours per week on courses or work in the program. Theprogram must be at the post-secondary-school level, including a program offered by aninstitution certified by the Minister of Human Resources Development to furnish a person withskills for, or improve a person’s skills in, an occupation.

Are there any limits as to how much can be withdrawn as an EAP?EAPs are restricted to $5,000 during the first 13 weeks of school. There are no further limitsbeyond the first 13 weeks.

This applies to plans entered opened in 1999 and does not affect beneficiaries for whom RESPswere opened in 1998 or earlier.

How are payments made?Payments may be made directly to the beneficiary, or to the subscriber or post-secondaryeducational institution for the benefit of the individual enrolled in a post-secondary educationalinstitution. Educational assistance payments are to be reported on a T4A income slip and aretaxable in the hands of the beneficiary.

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Is the grant portion of an Educational Assistance Payment taxable?Yes, the entire EAP including the grant portion is taxable, as income to the beneficiary.

Do EAPs from a family plan with multiple beneficiaries have to be paid out in the sameallocation as the contributions that were made?No. The subscriber can allocate any amount as an EAP (within the amount available to be paidout) to any beneficiary. This allows a plan with multiple beneficiaries to pay more income to abeneficiary incurring higher costs, for example.

Will EAP amounts be defined (i.e. % of revenue, of grant and of contribution) or will thisbe left to the discretion of the student?The CESG portion of the EAP will be based on the ratio of CESG paid into the plan to the totalinvestment earnings and CESGs held in the plan, and will reduce the remaining balance in theplan’s CESG notional account.

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Accumulated Income Payments

What happens to the accumulated income in the RESP if it is not used by the beneficiary?Subscribers have four options in this case:• Designate a new beneficiary• Donate the earnings to a post secondary institution of choice• Receive the investment income in the form of an Accumulated Income Payment (AIP) if

certain conditions are met (see below). AIPs can be received in two ways:• the subscriber can transfer the income into their (or a spousal RRSP) up to a

maximum of $50,000, provided there is sufficient contribution room• the subscriber may receive the AIP directly, subject to their marginal tax rate plus a

20 % surtax.

Under what conditions may an AIP be made?An AIP can only be made if:• The plan has been in existence for at least 10 years.• Each beneficiary for whom a contribution has been made into the plan has reached the age of

21 (or each such individual is deceased); AND• The beneficiary is not qualified to receive educational assistance payments (i.e. not pursuing

a post-secondary education).

Who can receive an Accumulated Income Payment (AIP)?An AIP can be paid to:• a subscriber• the spouse of a deceased subscriber (if there is no other subscriber) OR• where a subscriber has died and there is no other subscriber, any other recipient under certain

circumstances

The individual receiving an AIP must be resident in Canada at the time the AIP is made.

What happens if the 10-year, age 21 or Canadian residency requirements cannot be met?If the beneficiary does not qualify for educational assistance payments and the subscriber doesnot qualify for an AIP, then the investment earnings must be paid to a designated educationalinstitution in Canada.

What are the components of the AIP?An AIP is composed of earnings accrued on all contributions made to the plan (and this includesearnings on the grant) that are not paid out as part of an EAPs.

What limits exist on the AIP amount transferred to an RRSP?Provided the subscriber meets the conditions that will permit an “Accumulated IncomePayment”, the payment may be transferred to an RRSP (without penalty) up to the lesser of thesubscriber’s unused RRSP deduction room or $50,000.00.

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If there are joint subscribers, are they only entitled to their share (based on contributions)as an AIP or can it be divided differently?The Income Tax Act does not have any rules governing the ratio of the split of the funds betweenthe subscribers. Joint subscribers can choose the amount each will receive and can each takeadvantage of the full RRSP transfer (lifetime maximum of $50,000 each). Where more than oneperson is entitled to receive accumulated income payments under an RESP, the payments must bemade separately. This means that there may not be one cheque made for both subscribers; twocheques must be issued.

Can AIPs be transferred to a RRIF?No, not directly. The amounts must first be transferred to an RRSP, provided RRSP room isavailable, before being transferred to a RRIF.

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Canada Education Savings Grant (CESG)

What is a CESG?A CESG is the Canada Education Savings Grant, introduced by the Federal Government in 1998.The government will contribute up to 20% of the first $2,000 contributed to an RESP on behalfof a beneficiary each year.

Is the CESG included in calculating the annual and lifetime contribution limit?No.

What is the maximum amount of CESG that may accrue to a single beneficiary?The lifetime limit for CESGs is $7,200 (i.e. 18 years x $400/year). Any overpayment of Grantmoney in excess of $7,200 must be returned to the government.

When can beneficiaries who turn age 16 or 17 in the calendar year receive a grant?Only where a minimum of $2,000 of RESP contribution was made in any year before thebeneficiary turned age 16 or 17, or a minimum of $100 in annual contributions for thebeneficiary were made in four years before the beneficiary turned 16 years of age.

Is the calendar year used for CESG purposes?Yes. The calendar year is used to determine CESG eligibility.

When will the Grant be paid?The CESG will be paid directly into the RESP on a quarterly basis (provided there has been acontribution which attracts a grant payment.)

Will the CESG be paid when the beneficiary is a non-resident of Canada?No. The beneficiary must be resident in Canada, according to the Income Tax Act, at the timethe contribution is made in order for HRDC to pay the CESG into the RESP account. Thebeneficiary may use the EAP to attend post-secondary studies at a designated educationalinstitution anywhere in the world.

If a beneficiary is a Canadian resident, but subsequently becomes a non-resident, would thegrant earned while the beneficiary was a resident have to be repaid?

As a resident of Canada at the time the contributions were made, the beneficiary was eligible forthe CESG. If the beneficiary subsequently became a non-resident, the grant money would nothave to be reimbursed. During the period when the beneficiary is a non-resident, he would notbe eligible for the CESG on contributions made to his RESP.

Can a resident beneficiary who has received the grant but who now attends a post-secondary institution outside Canada still qualify for the grant portion of the EAP orwould the grant have to be repaid?In reply to question 2, the grant would not have to be repaid provided the beneficiary is pursuinga program of post-secondary studies in an accredited educational institution outside the country.Otherwise, no CESG money would be included in the EAP and the grant would have to berepaid. (The exception is where the RESP is a family plan and there are beneficiaries who hadnot yet qualified for EAPs.)

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Can a subscriber who has money in trust for his children’s education get the Grant eventhough this is not an RESP account?Contributions made to a trust that is not registered as an RESP will not attract the CESG. Onlycontributions made after December 31, 1997 to eligible RESPs will attract the CESG.

Would a $10,000 contribution receive the Grant on the whole amount?The maximum allowable annual RESP contribution is $4,000 and the maximum possible Grantpayable in any one-year is $400 plus unused grant room carried forward from previous years.Theoretically, this could amount to a potential maximum Grant of $800. An important note: inthis example $6,000 ($10,000-$4,000) is in excess of the RESP annual contribution limit of$4,000 and this excess will be subject to a penalty tax from Revenue Canada.

If one beneficiary is named under two plans, and contributions are made to each plan,which plan gets the Grant?The Grant will be paid on a first come, first serve basis, subject to annual and lifetime limits. Inthe event that two subscribers make contributions in the same quarter to two separate RESPs, thesubscriber’s contribution dated earliest in the quarter, will receive the Grant. In the event that thecontributions are made on the same day, the grant will be pro-rated.

If the Grant has to be repaid and there is a loss in the investment, what happens?Losses are considered to come first from earned income, then from contributions and last fromthe Grant. If the total value of a plan at a particular time is less than the amount of Grantreceived, a return of contributions is not permitted. Under these circumstances only EAPs orAIPs would be permitted.

A subscriber contributes $3,000 to an RESP in 1998 and attracts the maximum CESGbased on the first $2,000 contributed. Will the difference of $1,000 ($3,000 - $2,000) attractCESG in the following year?Contributions made in a year which do not attract the CESG may not be carried forward to thefollowing calendar year for purposes of attracting the CESG.

A Subscriber makes RESP contributions totaling $1,500 prior to 1998. In 1999, thesubscriber decides to withdraw $500 from the RESP. Is the subscriber penalized as aresult?If the named beneficiary is enrolled in an eligible post-secondary educational institution at thetime of the withdrawals, there are no penalties. Otherwise, withdrawals of pre-1998 contributionswill result in the beneficiary being ineligible for Grant for the remainder of the year of thewithdrawal and for the next two years. The purpose of this is to discourage the withdrawal andre-contribution of money in order to attract the Grant.

If a father and mother have joint custody of a child, is CESG available to both parents?Both RESP and Grant contribution limits apply to the beneficiary, irrespective of whocontributes, and all subscribers contributing to RESPs from a beneficiary are jointly subject tothese limits. The maximum annual RESP contribution per beneficiary is $4,000. The maximumcontribution eligible for a grant is $2,000, unless a carry-forward of grant room exists, in whichcase up to $4,000 in grant contribution room may be available. Where more than one subscriberexists for a single beneficiary, it is important for subscribers to ensure maximum contributionlevels are respected.

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Can a beneficiary benefit from more than one Grant per year?Yes. However, the Grant totals must not exceed the annual limit of $400 ($800 if there issufficient accumulated Grant contribution room) and the lifetime limit of $7,200.

Does CESG contribution room accumulate for every child under age 18 even if they don’thave an RESP?Yes. Each child will accumulate grant room for each year of their life after December 31, 1997,whether or not they have an RESP. This grant room can be carried forward to future years’RESP contributions. For example, a child is born on June 1, 1998, and the parent opens an RESPfor the child when he is 5 years old (in June 2003). By 2003 the child will have $2,000 ofavailable CESG contribution room built up.

Can beneficiaries under an RESP be substituted under a plan without triggering arepayment of CESG?A beneficiary may be replaced without affecting the CESG, as long as the new beneficiary is asibling of the former beneficiary or both are related by blood or adoption to the subscriber. Thenew beneficiary must be under the age of 21 to be added to the plan. Should these conditions notbe satisfied, an RESP trustee will be required to repay the CESG money the HRDC.

When can the subscriber withdraw their original contributions without triggering a CESGrepayment? I.E. Do they have to wait until the balance in the plan’s CESG account iszero?If the beneficiary is not enrolled in a post-secondary institution, and the subscriber makes awithdrawal of contributions, the subscriber must withdraw from assisted capital first (seeContributions section). This will trigger grant repayments to the government until the assistedcapital and grants are all gone.

For example, let’s suppose a client has $5,000 of assisted capital and $2,000 of unassisted capitalin their RESP. If they wanted to withdraw $1,000, it would be deemed to be withdrawn fromassisted capital and the corresponding grant amount (i.e. $200) will be repaid to the government.If however the client wished to withdraw $6,000, $5,000 is withdrawn from assisted and $1,000from unassisted capital.

To discourage the withdrawal of unassisted capital for the purpose of reinvesting to attract grant,RESP trustees will inform HRDC of all withdrawal of unassisted capital from any RESP,including pre-1998 contributions. Withdrawal of unassisted capital would result in a tracking ofthe beneficiary’s account, which would make the beneficiary ineligible for grant payments forthe current year and the next two years.

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Closing an RESP

What are the procedures to follow in the event a subscriber withdraws contributions orcloses the plan?

If the subscriber withdraws contributions from an RESP that has received a grant, the RESPtrustee will be required to make a CESG repayment equal to 20% of the withdrawal. This ruledoes not apply in the case where a beneficiary is enrolled in a post-secondary program at anaccredited educational institution. In this case, the subscriber may withdraw his contributionswithout penalty.

A subscriber will be allowed to close the plan under certain conditions. Specifically, (1) the planmust have been in existence for at least 10 years, (2) all beneficiaries must be at least 21 years ofage and not pursuing higher education, (3) the subscriber must be resident in Canada. If theseconditions are met, the subscriber is allowed to receive an accumulated income payment. Thesubscriber may choose to transfer the payment to a registered retirement savings plan, withoutpenalty, if the subscriber has sufficient room to absorb the amount of the transfer. Thesubscriber also has the option to receive a cash payment. In this case, the promoter will berequired to make sufficient source deductions to cover the subscriber’s normal rate of tax plusthe 20% surtax.

All withdrawal activity will be reported to the CESG program by the Trustee.

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The SMI RESP

What type of plan is the SMI RESP?We are offering self-directed family and individual plans.

What can be invested?The full range of investments available for RESPs (see page 12) are available for purchase.

Are there any fees associated with the plan?• The annual administration fee is $50. This will be waived for the first year, like the RRSP

and RRIF fees.• Employees of SMI, BNS, ISS and Scotia Capital are each eligible for one free RESP.• Fees will also be waived for clients with $150,000 + in household assets, or who are invested

in any SMI fee based program, which have their own minimums (i.e. Summit, Pinnacle andPartnership Plus.)

• All other fees associated with Registered Plans apply (refer to the most recent fee schedule).

Can we transfer in RESPs from other companies?At the moment, due to systems restrictions we are unable to transfer in existing plans from otherfinancial institutions. However, once the system is in place we will accept transfers.

Please note that clients who have RESPs at pooled plans (e.g. Heritage Trust, CanadianScholarship Trust, etc) should check with that company as to whether or not the plan is portable.Many of the pooled plans may not be transferred without penalty.

Is the RESP client statement different?The RESP statement looks more like a basic cash account statement than an RRSP statement. Atthis time, we aren’t able to create a special RESP statement that would contain the informationspecific to RESPs.

Where can I get more information on what forms to use and how to open an account?See SCM Online/PCFS/Registered Products/RESP for a list of forms and copies of job aids.