Archive for August, 2007

This and That

August 30, 2007

  1. If you are thinking about buying a HDTV in the near future, this report in The New York Times suggests waiting till the New Year to take advantage of even lower prices.
  2. The Globe and Mail reports that a serious security breach has occurred at the discount broker TradeFreedom. The report mentions that the company has already contacted affected clients.
  3. Ellen Roseman writes in The Toronto Star about the Horizon BetaPro Bull and Bear funds.
  4. Rob Carrick reports from the red carpet on who won in the Canadian Financial Excellence Awards.
  5. Larry MacDonald points to a list of giant Canadian mutual funds. Even if you are a believer in the value added by active management, you will almost certainly do better with a low cost index fund compared to a giant equity fund. A recent report from Leith Wheeler funds shows why.
  6. There will be no post on Monday. Have a nice Labour Day weekend.

Basics of Registered Education Savings Plans (RESP)

August 30, 2007


Mike of Four Pillars blog commented that the RESP information on the Government of Canada website that I referred to in yesterday’s post has not been updated with RESP changes introduced in the 2007 Federal Budget. As the RESP rules are confusing and widely misinterpreted at the best of times, I hope to provide comprehensive information in this post. You can also refer to Mike’s recent post for examples.

Contribution Rules

Unlike RRSPs, contributions to a RESP are not tax deductible. You can contribute a maximum of $50,000. The investment returns within a RESP are not taxed until money in withdrawn from the plan. There is no annual contribution limit. You can contribute the entire $50,000 lifetime maximum in one year, though the matching Canada Education Savings Grant (CESG) has an annual limit.

Canada Education Savings Grant (CESG)

  1. The Government of Canada matches 20% of your contributions by paying the CES grant directly into your RESP account, irrespective of your household income. In prior years, the maximum CESG was $400 per child for every annual contribution. In the 2007 federal budget, the limit was increased to $500 for 2007 and later years.
  2. Unused grants accumulate and will be paid for future contributions. Prior to 2007, the maximum CESG per year was $800, provided you have unused grants. In 2007 and later years, the maximum CESG per year is $1,000.
  3. The lifetime maximum CES grant that a child can receive is $7,200.
  4. Lower income families are eligible to receive slightly higher CESG and may also be eligible for the Canada Learning Bond.

Withdrawal Rules

You can start withdrawing from a RESP when your child starts full or part-time studies in a qualifying education program. Since contributions made to the RESP plan were taxed already, they are not taxed on withdrawal. Grants paid by the Government into the plan and the growth of the funds within the plan is taxed at the hands of the beneficiary. Special rules apply when a child does not attend post-secondary education.

Family Plans

While an individual RESP account can be set up by anyone, only a family member can set up and contribute to a family RESP. The family plan is identical to individual plans except that more than one child can be the beneficiary of the plan. There is some confusion on how family RESP plans are set up (see the comments section in yesterday’s post).

Group RESPs

Group plans or pooled RESPs are available from a number of vendors. In my opinion, a self-directed RESP is vastly superior and flexible compared to these plans.

TD Waterhouse Lowers Commissions

August 29, 2007


TD Waterhouse has announced a new commission schedule effective September 4, 2007:

Clients with household assets of $100,000 or more with TD Waterhouse Discount Brokerage will pay a flat rate of $9.99 per Canadian or US equity trade.

If you qualify for the lower commissions, TD Waterhouse becomes the best choice for consolidating all your brokerage accounts. In addition to the new lower commissions, TD Waterhouse also offers wash trades and the opportunity to invest in the e-Series index funds.