Saving for the future

Registered Education Savings Plan (RESP)

An RESP is a savings plan used to save for an individual’s education after high school.

An RESP can help pay for an individual’s post-secondary education when they attend a:

• trade school
• CEGEP
• college
• university

The individual may also be eligible to receive government grants and bonds paid into their RESP, such as:

• the Canada Learning Bond (CLB)
• the Canada Education Savings Grant (CESG)
• other provincial benefits

The person that opens and contributes to the RESP is called the subscriber. A subscriber could be a parent, grandparent, guardian or someone else.

The individual for whom the RESP is opened is called a beneficiary, and they must:

• have a valid social insurance number (SIN)
• be a resident of Canada

The contributions to the RESP cannot be deducted on the subscriber’s tax return, and they will not receive an information slip.

The beneficiary can start receiving payments from their RESP once they are enrolled in a qualifying post-secondary program. Generally, the amounts received from an RESP are a combination of the contributions and educational assistance payments (EAPs).

EAPs are reported on the beneficiary’s tax return, and they will receive a T4A slip showing the amount in box 042.

Tax-Free Savings Account (TFSA)

A TFSA lets Canadian residents save money that is tax-free throughout their lifetime.

To open a TFSA, you must:

• be 18 or older
• have a valid social insurance number (SIN) or temporary tax number (TTN)

You open a TFSA through a financial institution, such as a bank, credit union, trust or insurance company.

Generally, your contributions, and the interest earned on them are not taxed when they are withdrawn from your TFSA. These contributions cannot be deducted on your tax return.

The maximum amount you can contribute is limited by your TFSA contribution room. Your contribution room grows every year after you turn 18 even if you don’t do your taxes. If you don’t contribute the full amount of your TFSA contribution room, the remaining amount is added to the contribution room for next year. If you have more than one TFSA, your contribution room applies to all of your TFSAs combined.

You calculate the TFSA contribution room by doing the following calculations:

• unused TFSA contribution room from the previous years
• -minus contributions made in the current year
• +plus withdrawals made from the TFSA in the previous year
• +plus TFSA dollar limit of the current year
• =equals Federal tax

Keep track of all your contributions and withdrawals in a year. Any amount withdrawn will increase the contribution room for the following year.

Registered Retirement Savings Plan (RRSP)

An RRSP is a savings and investment plan that you can open and contribute to in order to save for your, or your spouse’s future. You open an RRSP through a financial institution, such as a bank, credit union, trust or insurance company.

The maximum amount you can deduct on your tax return is limited to your RRSP deduction limit for the year. The deduction limit for your RRSP is calculated by the CRA using your earned income.

You can find the RRSP deduction limit on:

• My Account
• your latest notice of assessment

RRSP contributions made during the tax year’s contribution period can be used as deductions on your tax return. The contribution period is a timeframe during which you can contribute to an RRSP for a tax year. Generally, the RRSP contributions can be made for a tax year in any of the following 2 contribution periods:

• the last 10 months of the tax year (March 2 to December 31)
• the first 60 days of the following tax year (January 1 to March 1)

These contributions can be deducted on your tax return for the tax year or carried forward and deducted in any of the future years. These deductions may reduce the income tax you pay. Your financial institution reports your contributions on a contribution receipt.

Generally, the amounts you withdraw from an RRSP are taxable to either you, or your spouse in the case of a spousal RRSP. Your financial institution will issue you a T4RSP slip.

You can also use the money in your RRSP to buy or build a home through the Home Buyers’ Plan (HBP) or to finance full-time training or education through the Lifelong Learning Plan (LLP) if you meet all the eligibility criteria. You must repay the amounts received from your RRSP under these plans within the required timeframe or else you will have to report them as income on your tax return.

You must close your RRSP before December 31 of the year you turn 71. The money in your RRSP can be:

• withdrawn and reported as income on your tax return
• converted into an annuity
• transferred to a Registered Retirement Income Fund (RRIF)

Registered Retirement Income Fund (RRIF)

A RRIF is a retirement fund. Its purpose is to provide you with a steady income when you are retired. The fund is made up of amounts transferred from a registered deferred income plan like an RRSP as well as plan earnings.

A RRIF is usually established in the year an individual turns 71. An individual can choose to transfer the money in their RRSP to a RRIF. You open a RRIF through a financial institution, such as a bank, credit union, trust or insurance company.

You cannot make contributions to a RRIF. Your financial institution must start paying you a minimum amount from your RRIF in the year after the RRIF is established, and your financial institution will calculate this amount for you. You have the option to receive more than the minimum amount. All amounts received from a RRIF must be reported on your tax return.

First Home Savings Account (FHSA)

An FHSA is a registered savings account that allows first-time home buyers to save money to buy or build their first home. It is a registered plan that combines features of the RRSP and TFSA.

To open an FHSA, you must meet all of these conditions:

• be 18 years of age or older
• be a resident of Canada
• be a first-time home buyer

You open an FHSA through an FHSA issuer, such as a bank, credit union, trust or insurance company.

The money you put into an FHSA is called an FHSA contribution. Your FHSA contributions can be used as deductions on your tax return, which may reduce the income tax you pay on your tax return.

You can also transfer money from your RRSP into your FHSA if your have enough participation room.

The participation room in the year you open an FHSA is $8,000. You can contribute up to $8,000 each year. You can carry forward any unused participation room in a year (up to $8,000) and use it in the following year. Your lifetime contribution limit is $40,000.

You can find your FHSA contribution limit on your:

• My Account
• latest notice of assessment

You can withdraw money from your FHSA at any time to buy or build a home. This is referred to as a qualifying withdrawal and is not taxable. Any other withdrawals are considered taxable withdrawals and must be reported on your income tax return.

You can purchase a home with your FHSA funds as long as the purchase is made before the earliest of either:

• the end of the year after the year you make your first qualifying withdrawal
• the end of the year of your first FHSA’s 15th anniversary
• the end of the year you turn 71

Registered Disability Savings Plan (RDSP)

An RDSP is a registered savings plan to help individuals who are approved for the disability tax credit (DTC) save for their future.

The individual for whom the RDSP is opened is called a beneficiary and must meet all of the following conditions:

• is approved for the DTC
• has a valid social insurance number (SIN)
• is a resident of Canada
• is under the age of 60

The beneficiary may also be eligible to receive grants and bonds, such as:

• Canada disability savings grant
• Canada disability savings bond

The person that opens and contributes to the RDSP is called the holder. Depending on the situation, a holder could be the beneficiary themselves or a parent, guardian or other qualified individual.

The lifetime limit for contributions is $200,000. The contributions to an RDSP are not reported on your tax return, and you will not receive an information slip.

A beneficiary may receive disability assistance payments (DAPs) at any time. A beneficiary may receive DAPs as lump sums or lifetime disability payments (LDAPs), which are periodic payments. The beneficiary must start receiving LDAPs in the year they turn 60.

Taxable amounts from an RDSP are reported on the beneficiary’s tax return, and they will receive a T4A slip showing the amount in box 131.