The Governments 2007 Budget, Bill C-52 Receives Royal Assent - RESPs Affected

Bill C-52 Receives Royal Assent, the following information highlights the changes contained in Bill C-52 that affect RESPs

The Information Circular #10/07 dated June 28, 2007, was provided by Concentra Financial.

RESP - Annual Limit

Effective 2007, the $4,000 annual limit restriction has been eliminated. A Subscriber may contribute any amount, provided the total contributions do not exceed the maximum lifetime limit.

Over contributions made prior to 2007 will continue to be subject to a penalty.

RESP - Lifetime Limit

The lifetime RESP contribution limit for a beneficiary has increased from $42,000 to $50,000, effective 2007 and subsequent years.

RESP - Tax on Excess Amount

The 1% penalty tax on contributions exceeding the lifetime limit of $50,000 will continue to apply in 2007 and subsequent years.

Prior to 2007, the 1% penalty tax is applied on contributions exceeding the lifetime limit of $42,000.

Penalty tax will continue to apply until the excess amount is withdrawn.

RESP - Educational Assistance Payment

(EAP) Qualifications

The EAP eligibility requirements have been amended for 2007 and subsequent years. A beneficiary may receive EAP if:

A) The individual is, at that time, enrolled as a student in a qualifying educational program at a post secondary educational institution, and is enrolled throughout at least 13 consecutive weeks in the 12month period that ends at that time or the total of all EAP does not exceed $5,000.

OR

B) the individual has attained the age of 16 and is, at that time, enrolled as a student in a specified educational program at a postsecondary educational institution and the total EAP in the 13-week period that ends at that time does not exceed $2,500. ,

"Specified educational program" means a program at a post-secondary school level of not less than 3 consecutive weeks duration that requires each student taking the program to spend not less than 12 hours per month on courses in the program.

RESP- CESG

The Basic CESG has increased from $400/year to $500/year, effective 2007. Eligible beneficiaries will now receive 20% Basic CESG on the first $2,500 RESP contributions.

Maximum lifetime limit remains unchanged at $7,200 per beneficiary.

RESP - Unused CES Grant Room

Eligible beneficiaries will accumulate $400 CES Grant Room each year from 1998 to 2006 inclusive and $500 CES Grant Room for 2007 and subsequent years.

The increase to the Basic CESG amount will also increase the maximum Basic CESG payable in one year from $800/year to $1,000/year.

If an eligible beneficiary has Unused CES Grant Room of $1,000 or more, and the subscriber makes a $5,000 RESP contribution, the eligible beneficiary would receive $1,000 Basic CESG ($5,000 x 20%).

When will these changes be in place?

Human Resources and Skills Development Canada (HRSDC) has confirmed that additional information will be forthcoming but has not indicated when.

[Concentra will] continue to administer RESP contracts in the same manner until HRSDC has released new procedures and implemented data system changes.

Registered Disability Savings Plans (RDSP)

Bill C-52 did not contain proposed legislation for this new registered product.

Progress of this new product will be communicated when further information is released by the Government.