RESP's should be indexed

Recommended reading, economic debates, predictions and opinions.
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

RESP's should be indexed

Post by gaspr »

Just pointing out that RESP contribution limits and the matching CESG grant contributions, have been decreasing in "real" dollar value ever since the program was started. I think they should be indexed just like TFSA contribution limits are...

Are we letting the government get away with eroding this benefit through inflation? I think we are.

Your thoughts?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

gaspr wrote:Are we letting the government get away with eroding this benefit through inflation? I think we are.

Your thoughts?
Agreed it should be like other benefit programs IF you believe there should be a program in the first place. An alternative would be to scrap it, along with a host of other targeted voter graft benefit programs.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: RESP's should be indexed

Post by Descartes »

AltaRed wrote:..scrap it, along with a host of other targeted voter graft benefit programs.
**cough**TFSA**cough**
"A dividend is a dictate of management. A capital gain is a whim of the market."
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

:lol: :lol:
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

Re: RESP's should be indexed

Post by gaspr »

I was hoping that a discussion of the relative merits of the program could be left for another thread. Politics aside, it just seems wrong that this popular program is being knowingly eroded while post secondary education costs have been rising at rates well above the cost of living...
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

gaspr wrote:I was hoping that a discussion of the relative merits of the program could be left for another thread. Politics aside, it just seems wrong that this popular program is being knowingly eroded while post secondary education costs have been rising at rates well above the cost of living...
Merit has to be discussed as part of the debate, especially if the government feels it was overly generous to begin with. How would you feel if there had no program to begin with, or had always been half the size it is today. The way to shrink an 'excessive' program is to make deliberate reductions with the political fallout or decrease it over time by stealth. Whether tuition is going up or not is a different issue.

FWIW, I believe it is a worthwhile program even though when I had kids that could have benefitted from such a program,the terms were much too onerous to cast my rod into that net. Whether the amount is right or now, I don't have an opinion, but the terms of use (flexibility) are appropriate.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
squid
Contributor
Contributor
Posts: 323
Joined: 18 Jun 2008 14:31

Re: RESP's should be indexed

Post by squid »

My feelings from the new government is they prefer grants to low income students, over incentives that are used mostly by the higher earners. I doubt they would be game to increase it.

Look what they did to the child sports and arts tax credits:

http://www.cbc.ca/news/canada/nova-scot ... -1.3504248
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

Re: RESP's should be indexed

Post by gaspr »

squid wrote:My feelings from the new government is they prefer grants to low income students, over incentives that are used mostly by the higher earners. I doubt they would be game to increase it.

Look what they did to the child sports and arts tax credits:

http://www.cbc.ca/news/canada/nova-scot ... -1.3504248

An inflation adjustment is not an increase....doing nothing is a decrease.
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

Re: RESP's should be indexed

Post by gaspr »

AltaRed wrote:
FWIW, I believe it is a worthwhile program even though when I had kids that could have benefitted from such a program,the terms were much too onerous to cast my rod into that net. Whether the amount is right or now, I don't have an opinion, but the terms of use (flexibility) are appropriate.

Maybe you have grandchildren that could benefit? That is what we using it for...
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

gaspr wrote:Maybe you have grandchildren that could benefit? That is what we using it for...
True enough and we do. That isn't the point though. Whether RESPs should be indexed or not is a matter of opinion and/or great debate.

Added: Maybe the discussion should be a philosophical one. How much of a secondary education should a RESP cover? All of it? Tuition only? A portion of tuition such that students and parents have some other skin in the game? Does an excessive stack of RESP funds at the start of secondary education reduce incentive to not piss away both money and time?

To me, an RESP provides an incentive to create a 'college fund' such that capable students have an opportunity for a kick start at secondary education. That is really all it should be, no?
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
max88
Contributor
Contributor
Posts: 475
Joined: 26 Oct 2007 21:29
Location: Toronto

Re: RESP's should be indexed

Post by max88 »

RRSP's should be eliminated (scrapped). This from me who is taking "advantage" of it. Any gov program is politics. If it benefits the other guy, it's tax loophole. If it benefits me, it's tax reform.
I am cautiously optimistic. When it goes up, I claim I have been optimistic; when it goes down, I claim I have been cautious.
squid
Contributor
Contributor
Posts: 323
Joined: 18 Jun 2008 14:31

Re: RESP's should be indexed

Post by squid »

gaspr wrote:
squid wrote:My feelings from the new government is they prefer grants to low income students, over incentives that are used mostly by the higher earners. I doubt they would be game to increase it.

Look what they did to the child sports and arts tax credits:

http://www.cbc.ca/news/canada/nova-scot ... -1.3504248

An inflation adjustment is not an increase....doing nothing is a decrease.
Thanks for the lesson on inflation. It is more likely, given LPC policy, that RESP limits and grants will be decreased and funds be diverted to income based bursary programs.
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

Re: RESP's should be indexed

Post by gaspr »

squid wrote:
gaspr wrote:
squid wrote:My feelings from the new government is they prefer grants to low income students, over incentives that are used mostly by the higher earners. I doubt they would be game to increase it.

Look what they did to the child sports and arts tax credits:

http://www.cbc.ca/news/canada/nova-scot ... -1.3504248

An inflation adjustment is not an increase....doing nothing is a decrease.
Thanks for the lesson on inflation. It is more likely, given LPC policy, that RESP limits and grants will be decreased and funds be diverted to income based bursary programs.
Well, thanks for the lesson on LPC policy!
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: RESP's should be indexed

Post by Descartes »

gaspr wrote:Just pointing out that RESP contribution limits and the matching CESG grant contributions, have been decreasing in "real" dollar value ever since the program was started. I think they should be indexed just like TFSA contribution limits are...

Are we letting the government get away with eroding this benefit through inflation? I think we are.

Your thoughts?
1. The annual maximum CESG was increased from $400 to $500 in 2007.

2. If an index were used then it shouldn't be based on the CPI which covers some expenses and services that don't fall under the category of "educational expenses".

3. I suppose your mileage may vary, but you've got $50,000 you can contribute, $7,200 Canada contributes through CESG, and any tax-free growth you have achieved through prudent investing of the aforementioned funds.
..If you can't make ends meet with that then maybe your kid isn't the one who needs to go to school ;)
"A dividend is a dictate of management. A capital gain is a whim of the market."
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: RESP's should be indexed

Post by adrian2 »

Descartes wrote:1. The annual maximum CESG was increased from $400 to $500 in 2007.

2. If an index were used then it shouldn't be based on the CPI which covers some expenses and services that don't fall under the category of "educational expenses".

3. I suppose your mileage may vary, but you've got $50,000 you can contribute, $7,200 Canada contributes through CESG, and any tax-free growth you have achieved through prudent investing of the aforementioned funds.
..If you can't make ends meet with that then maybe your kid isn't the one who needs to go to school ;)
1. yes, but the total CESG has stayed at $7,200 for two decades.

2. tuition has gone up at about double the CPI.

3. There is no tax-free growth in an RESP. A better approximation for the tax treatment of the growth in an RESP is shifting the potential income of the annuitant (usually the parent/grandparent) with the RESP recipient (the student).
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: RESP's should be indexed

Post by Descartes »

tuition has gone up at about double the CPI.
Cite?
There is no tax-free growth in an RESP. A better approximation for the tax treatment of the growth in an RESP is shifting the potential income of the annuitant (usually the parent/grandparent) with the RESP recipient (the student).
Let's not bandy terms here. You knew what I meant and yes, it is essentially tax free, unless your kid had one hell of good summer job.
"A dividend is a dictate of management. A capital gain is a whim of the market."
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

Descartes is right. The RESP program is a gift because the CESG grants and growth of the assets are taxed in the hands of the beneficiaries....which typically are well below taxable thresholds, and particularly when using tuition tax credits. It is a hell of an incentive to put money into that college fund.

The contributory limits were raised once circa 2007 I believe (may have the date wrong) and one might argue, it is due for another increase. But jumping jeepers murphy, as Descartes also said, the RESP program is generous with a contribution limit of $50k regardless of how room and board and tuition and books has crept up. If our grandkids cannot fund the bulk of a 4 year university program with that kind of money (along with summer jobs), then they need a lesson in budget management.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: RESP's should be indexed

Post by adrian2 »

Descartes wrote:
tuition has gone up at about double the CPI.
Cite?
http://www.macleans.ca/interactive-how- ... -province/
Students in Ontario pay the most, with average tuition fees coming to $7,539, a 3.9 per cent increase over last year. The biggest increase in tuition, year to year was in Saskatchewan, which has the second highest fees in the country. Undergrads there saw fees rise by 4 per cent to the new average of $6,659.

On the other side of the country (and price range), students in Newfoundland and Labrador had the lowest tuition fees. It was also the only province where tuition fees froze from their 2013/2014 levels. This year and last, they paid $2,631 on average. Quebec came in a close second with an average of $2,743, a 3.2% bump from last year.
...
When it comes to costs, not all programs are created equal. Getting a degree in Dentistry can set you back by $18,187. There’s more bad news for would-be dentists: tuition costs rose 4.6 per cent from the last academic year. Medicine followed as the second priciest undergrad degree with tuition fees averaging at $12,959, a 3.9 per cent increase from last year.

Increases weren’t limited to the priciest programs. Tuition fees edged up from last year for every single field of study. The biggest leap was for students of law, legal professions and studies who saw a 4.7 per cent jump to $10,508.
Descartes wrote:
There is no tax-free growth in an RESP. A better approximation for the tax treatment of the growth in an RESP is shifting the potential income of the annuitant (usually the parent/grandparent) with the RESP recipient (the student).
Let's not bandy terms here. You knew what I meant and yes, it is essentially tax free, unless your kid had one hell of good summer job.
It is a shift of income. Tuition credits, if not used, can be carried forward by the student until used in future years.
RESP growth and CESG, by using up those credits, make the student pay more taxes in the future.

There is no tax free growth in the CESG.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
FI40
Contributor
Contributor
Posts: 60
Joined: 05 Nov 2015 20:47

Re: RESP's should be indexed

Post by FI40 »

Descartes wrote:
tuition has gone up at about double the CPI.
it is essentially tax free, unless your kid had one hell of good summer job.
Well the summers in university are almost 4 months, I think it's pretty reasonable to expect that many kids would earn more than the basic personal amount of ~11k and put themselves in the 20% marginal bracket, unless I misunderstand something?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

$15/hr @ 680 hours =$10200 and that is stretching the hours (17 weeks @ 40 hrs) count in most jobs, other than perhaps construction/technical work terms. There are the usual CPP/EI deductions and then tuition credit to offset the taxable component of RESP withdrawal. No reason for a student to fall into taxable territory at least in the first 2 years. That does change particularly in fields like engineering in later years when work terms should pay more. And of course, some students pick up part time jobs during semesters, but that is likely less than a few grand total.

A student falling into taxable territory is really picking around the edges.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Descartes
Veteran Contributor
Veteran Contributor
Posts: 1856
Joined: 03 Nov 2008 09:59

Re: RESP's should be indexed

Post by Descartes »

FI40 wrote:Well the summers in university are almost 4 months, I think it's pretty reasonable to expect that many kids would earn more than the basic personal amount of ~11k and put themselves in the 20% marginal bracket, unless I misunderstand something?
Try out a calculator:
http://www.taxtips.ca/calculators/canad ... ulator.htm

For example, let's say that an Ontario student earned 10K from a summer job and got 10K from the RESP entirely EAP* as a worst case (i.e. not including any of your tax free contribution of 50K - and it is tax free because you already paid taxes on that before you contributed it):
If the student claims 10K in tuition fees = 0 tax
If the student claims 5K in tuition fees = $176 tax

Despite Adrian's obstinant insistence on proper use of terms (which I will continue to flaunt to annoy him :)), this is *ESSENTIALLY* tax free.

*EAP is that portion of your RESP funds minus your contribution; i.e. the growth and the CESG.
"A dividend is a dictate of management. A capital gain is a whim of the market."
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: RESP's should be indexed

Post by AltaRed »

Descartes wrote:Despite Adrian's obstinant insistence on proper use of terms (which I will continue to flaunt to annoy him :)), this is *ESSENTIALLY* tax free.
C'mon Adrian.... Go along with us on this. :wink:
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: RESP's should be indexed

Post by adrian2 »

Descartes wrote:For example, let's say that an Ontario student earned 10K from a summer job and got 10K from the RESP entirely EAP* as a worst case (i.e. not including any of your tax free contribution of 50K - and it is tax free because you already paid taxes on that before you contributed it):
If the student claims 10K in tuition fees = 0 tax
If the student claims 5K in tuition fees = $176 tax

Despite Adrian's obstinant insistence on proper use of terms (which I will continue to flaunt to annoy him :)), this is *ESSENTIALLY* tax free.

*EAP is that portion of your RESP funds minus your contribution; i.e. the growth and the CESG.
Using the tuition fees a few years before settling in a full time job is not a tax free proposition. At today's interest rates, a tax credit of, say, $30,000 in a few years is worth almost $30k today. Blowing it up on CESG & EAP costs real money.

To go half way, I'll agree that if the total taxable income of the student, including EAP + CESG, is up to $11k or so, and the tuition credits are not used (enabling carry forward or transfer to parent), it's essentially tax free.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
gaspr
Contributor
Contributor
Posts: 287
Joined: 10 Feb 2015 11:39

Re: RESP's should be indexed

Post by gaspr »

Using the Bank of Canada's inflation calculator, $7200 in 1996 would be equivalent to $10428 in today's dollars.
OhGreatGuru
Veteran Contributor
Veteran Contributor
Posts: 1361
Joined: 27 Mar 2010 16:01

Re: RESP's should be indexed

Post by OhGreatGuru »

How much you want to bet they're saving this until just before the next election?
Post Reply