Author Topic: Canada RESP - $2500 max contribution  (Read 2996 times)

Prairie Stash

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Canada RESP - $2500 max contribution
« on: December 18, 2016, 03:30:17 PM »
Periodically people write about investing money into RESP's that make me cringe. First off you can get a 20% match on contributions up to $2500. This brings us to the first rule:

1) Do not exceed $2500/year/child for contributions

People commonly use UCCB money for investing into their RESP, not a bad plan. However there's a missed opportunity with the UCCB, its the only income your kids have and can actually be invested in their name. That means all capital gains/dividends are taxed in their hands (not the parents), generally this account is tax free since it doesn't earn enough to be taxable. Usually you can't invest in your child's name, only the UCCB dollars have this feature! To make this work there's Rule #2 and 3.

2) invest UCCB money into a taxable investment account in your child's name
3) invest your wage income into the RESP, saving the UCCB for investing (now you have a paper trail)

Now the investment account has a unique feature, you can actually do capital gains harvesting to minimize future taxes (its the opposite of loss harvesting). If you keep the realized gains below the minimum income then there's no taxes owed for that year and lower chance of paying future taxes.  Unlike an RESP, the taxes can be spread out over a decade or more, not just during the university years. 

Now I get not everyone exceeds $2500/year, but those that do are missing money. Hence rule #1, if you're below then don't worry about #2,  and the alternate options. Once you hit the lifetime match after 14.4 years of contributions, just stop contributions since you're risking increase taxes without any benefits. With the rules for withdrawals and taxes there aren't any benefits to an RESP once you exceed the match.

Pro-Tip: filing Tax returns for children earns RRSP room for later on in life. 20 years after my first tax return I used the room to save a few hundred dollars in tax. Thank you young me, current me likes the cash bonus!

I look forward to hearing holes in this strategy, I can't find any.

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Re: Canada RESP - $2500 max contribution
« Reply #1 on: December 18, 2016, 06:09:28 PM »
Hi Prairie Stash,

I feel like an idiot, I just paid the tax on the UCCB money. It would have been awesome to create an account in my infant son's name, and not pay tax on it. I did not know that was possible.

But with the UCCB being cancelled, I don't think we can do this in the future since the new CCB is tax free...right?

Also, if my son has absolutely no income, there's no point filing, right? He won't have part time income until he's 14, at best, so I don't think filing with zeros everywhere would really do anything to his RRSP room.
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Re: Canada RESP - $2500 max contribution
« Reply #2 on: December 18, 2016, 08:32:18 PM »
For the RESP there is some catch-up available, so you can actually contribute up to $5000 and receive $1000 of grant in one year, if there is room from the previous year.

And yes, no point to file re: RRSP room until there is income, or he is 18 (GST credit starts at 19).

Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #3 on: December 19, 2016, 08:20:58 AM »
Hi Prairie Stash,

I feel like an idiot, I just paid the tax on the UCCB money. It would have been awesome to create an account in my infant son's name, and not pay tax on it. I did not know that was possible.

But with the UCCB being cancelled, I don't think we can do this in the future since the new CCB is tax free...right?

Also, if my son has absolutely no income, there's no point filing, right? He won't have part time income until he's 14, at best, so I don't think filing with zeros everywhere would really do anything to his RRSP room.
If you start an investment account then have gains and dividends you need to report it, otherwise the paper trail won't exist and you could be audited and have it taxed in your hands. Its really simple, it should take 10-15 minutes with simple tax or any software program. If they have 0$ income then no, you don't need to file. My daughter will get $3 in interest from her savings account (birthday money etc.), I might not file either unless I get bored. The cool part about filing is the new system keeps records for life, maybe she'll laugh one day at the $3 return that generated $0.54 in RRSP room.   

The CCB (like the UCCB) is the only source of money that can be used to fund an investment account that is fully taxed in your child's name. 

Please don't feel like an idiot, I'm in the same boat of just finding out. Its an extremely rare loophole for those that are middle class and save. The wealthiest don't collect child benefits and the poorest need them to live off.

Just so its not a random dude on the internet, here's a quote from the Globe and Mail (plain English, way easier than the CRA).
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/use-the-canada-child-benefit-to-invest-in-your-childrens-education/article32173058/
Interest and dividends earned in an in-trust account are taxed in the hands of the parent who funded the account, while realized capital gains are taxed in the child’s hands. One of the big benefits of using the CCB to invest for a child is that these attribution rules don’t apply to parents.

“The Canada Child Benefit is specifically carved out of the attribution rules for minor children,” said Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management. “If a parent sets that money aside for the child, then it becomes the child’s money and the child’s income will not be attributed back to the parent.”

It’s highly unlikely a child would actually have to pay any income tax based on dividend and interest income, but Mr. Golombek still suggests filing a tax return. The reason is that consistent tax filing demonstrates to the Canada Revenue Agency that someone is diligent about reporting all income.

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Re: Canada RESP - $2500 max contribution
« Reply #4 on: December 19, 2016, 08:28:11 AM »
For the RESP there is some catch-up available, so you can actually contribute up to $5000 and receive $1000 of grant in one year, if there is room from the previous year.

And yes, no point to file re: RRSP room until there is income, or he is 18 (GST credit starts at 19).
I always forget about catch up room. In my head I have it that I need to fund it for 14 years, then the contribution matching is maxed.

I almost went with an RESP provider to start, that was almost a costly mistake. The good part was they got me going early on, the bad part was their fees and rules were onerous. I signed up and cancelled a week later, I have no qualms about cancelling agreements. They acted surprised and angry, apparently no one else had ever cancelled after reading online reviews and looking through the prospectus. Their sales pitch included depositing my CCB with them, which sounds reasonable. Luckily I was turned off by all the gold the lady was wearing, I kept thinking how much of the gold was purchased with the fees from children's education funds. Multiple rings, bracelets and necklaces all glittering while she tried to assure me it was a great deal.

daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #5 on: December 19, 2016, 09:06:58 AM »
So can someone just clarify, I'm currently doing RESP contribs which are roughly the annual max, and which is entirely covered by CTB.

I could switch to putting 'my own' money into the RESP, and put the CTB money into a trust account in my daughter's name; she then gets the personal allowance, I file a tax return in her name which basically says: Income $x in dividends, and it's 'tax free' because her income is obviously under the ~$11k threshold?

There's no other benefit to it being in 'her name' except any cap gains are also hers; were I to invest in my name for 20 years, then sell and give to her, I'd have to pay cap gains.

If I'm smart I could sell and rebuy her stuff in 14, 15 years to reset the cost base while she is still earning nothing very much and hence all the growth is also 'tax free'? That's the point?
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Re: Canada RESP - $2500 max contribution
« Reply #6 on: December 19, 2016, 09:26:15 AM »
Hi Prairie Stash,

I feel like an idiot, I just paid the tax on the UCCB money. It would have been awesome to create an account in my infant son's name, and not pay tax on it. I did not know that was possible.

But with the UCCB being cancelled, I don't think we can do this in the future since the new CCB is tax free...right?

Also, if my son has absolutely no income, there's no point filing, right? He won't have part time income until he's 14, at best, so I don't think filing with zeros everywhere would really do anything to his RRSP room.
If you start an investment account then have gains and dividends you need to report it, otherwise the paper trail won't exist and you could be audited and have it taxed in your hands. Its really simple, it should take 10-15 minutes with simple tax or any software program. If they have 0$ income then no, you don't need to file. My daughter will get $3 in interest from her savings account (birthday money etc.), I might not file either unless I get bored. The cool part about filing is the new system keeps records for life, maybe she'll laugh one day at the $3 return that generated $0.54 in RRSP room.   

The CCB (like the UCCB) is the only source of money that can be used to fund an investment account that is fully taxed in your child's name. 

Please don't feel like an idiot, I'm in the same boat of just finding out. Its an extremely rare loophole for those that are middle class and save. The wealthiest don't collect child benefits and the poorest need them to live off.

Just so its not a random dude on the internet, here's a quote from the Globe and Mail (plain English, way easier than the CRA).
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/use-the-canada-child-benefit-to-invest-in-your-childrens-education/article32173058/
Interest and dividends earned in an in-trust account are taxed in the hands of the parent who funded the account, while realized capital gains are taxed in the child’s hands. One of the big benefits of using the CCB to invest for a child is that these attribution rules don’t apply to parents.

“The Canada Child Benefit is specifically carved out of the attribution rules for minor children,” said Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management. “If a parent sets that money aside for the child, then it becomes the child’s money and the child’s income will not be attributed back to the parent.”

It’s highly unlikely a child would actually have to pay any income tax based on dividend and interest income, but Mr. Golombek still suggests filing a tax return. The reason is that consistent tax filing demonstrates to the Canada Revenue Agency that someone is diligent about reporting all income.

Hm this is interesting. I wonder if I can go back in time so to speak, fill an investment account in my son's name, and re-file so that I don't claim the UCCB on my income. Thanks for the link. Gotta look into this more.

The CCB though, we get so little from that I don't think it'll really make sense. I have just moved to part-time though, so maybe next year it'll be relevant.

Also just a thought, but I think with a fully funded and well invested RESP, a savvy child should be able to pay for most of their educational costs. I'm not sure I'd really want to give my son much more than that in his name. I worry about the "trust fund baby" syndrome, even with smaller amounts like we're talking about.
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Re: Canada RESP - $2500 max contribution
« Reply #7 on: December 19, 2016, 09:31:35 AM »
So can someone just clarify, I'm currently doing RESP contribs which are roughly the annual max, and which is entirely covered by CTB.

I could switch to putting 'my own' money into the RESP, and put the CTB money into a trust account in my daughter's name; she then gets the personal allowance, I file a tax return in her name which basically says: Income $x in dividends, and it's 'tax free' because her income is obviously under the ~$11k threshold?

There's no other benefit to it being in 'her name' except any cap gains are also hers; were I to invest in my name for 20 years, then sell and give to her, I'd have to pay cap gains.

If I'm smart I could sell and rebuy her stuff in 14, 15 years to reset the cost base while she is still earning nothing very much and hence all the growth is also 'tax free'? That's the point?

Yes, that's my understanding. If you plan on having a lower income later on, I guess the capital gains tax avoidance wouldn't save you much. If you have a higher income now, then the dividend part would be great, although if you have the high income you won't get the CTB anyway. There's really a small range of situations where this would work, it seems. For those where it does though, it's free money.

One other issue I'm thinking about is if there are any account fees or trading fees, that'll really cut into the bottom line of this tax arbitrage scheme because the amounts are so low. Personally as I work for a bank I need to have all my family's accounts with them, and they have no good low fee investments available except for the discount brokerage, which is still $10/trade.
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Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #8 on: December 19, 2016, 10:09:26 AM »

Hm this is interesting. I wonder if I can go back in time so to speak, fill an investment account in my son's name, and re-file so that I don't claim the UCCB on my income. Thanks for the link. Gotta look into this more.

The CCB though, we get so little from that I don't think it'll really make sense. I have just moved to part-time though, so maybe next year it'll be relevant.

Also just a thought, but I think with a fully funded and well invested RESP, a savvy child should be able to pay for most of their educational costs. I'm not sure I'd really want to give my son much more than that in his name. I worry about the "trust fund baby" syndrome, even with smaller amounts like we're talking about.
An RESP functions similar to an RRSP. This strategy is similar to a TFSA for minors.

The UCCB/CCB is claimed on the lowest income parents taxes, no point re-filing. All future gains and dividends can be taxed in the child's hands. Any other time the gains/dividends would be taxed on your forms.  I'm not sure you can go retroactive, it might look like a tax dodge, once the money has gone into the communal pot its not generally divisible. If you do it from the start the paper trail exists.

To me a fully funded RESP should have $7,200 in grants and $36000 in parental contributions (max the grants). After that point the CCB money should be invested in a separate account (use your own finances to determine this point). If those two actions are done then you can invest more into an RESP (up to $14,000) as a wealth transfer tool. I agree about the RESP being sufficient, this strategy can also be used to circumvent the RESP withdrawal rules for children not going to school or for grad school. I also worry about the grants being lost to taxes anyhow; my progeny will be working summer jobs/internships and might end up paying taxes.

There is an opportunity to claw back the income. If a child is living at home you could charge rent/household expenses. So the RESP could be used for tuition, books and rent but the rent could be paid to the parents, there isn't a law saying you must provide free housing. Where it gets even more interesting is if you charge below FMV (Fair Market Value) the rent payments are not taxable in the parents future hands either. You can't claim deductions , since you aren't claiming the income, its to prevent people from illegally claiming more in deductions than a low rent offsets which could create a tax loss. This is the tricky part, making sure its all legitimate and not having your child feeling resentful thinking they're getting screwed.

Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #9 on: December 19, 2016, 10:18:52 AM »
So can someone just clarify, I'm currently doing RESP contribs which are roughly the annual max, and which is entirely covered by CTB.

I could switch to putting 'my own' money into the RESP, and put the CTB money into a trust account in my daughter's name; she then gets the personal allowance, I file a tax return in her name which basically says: Income $x in dividends, and it's 'tax free' because her income is obviously under the ~$11k threshold?

There's no other benefit to it being in 'her name' except any cap gains are also hers; were I to invest in my name for 20 years, then sell and give to her, I'd have to pay cap gains.

If I'm smart I could sell and rebuy her stuff in 14, 15 years to reset the cost base while she is still earning nothing very much and hence all the growth is also 'tax free'? That's the point?

Yes, that's my understanding. If you plan on having a lower income later on, I guess the capital gains tax avoidance wouldn't save you much. If you have a higher income now, then the dividend part would be great, although if you have the high income you won't get the CTB anyway. There's really a small range of situations where this would work, it seems. For those where it does though, it's free money.

One other issue I'm thinking about is if there are any account fees or trading fees, that'll really cut into the bottom line of this tax arbitrage scheme because the amounts are so low. Personally as I work for a bank I need to have all my family's accounts with them, and they have no good low fee investments available except for the discount brokerage, which is still $10/trade.
Spot on analysis. 

One difference is within my RESP I have limited investments - mutual funds through RBC. With the Direct Investing I can buy low fee ETF's. Honestly I'm still trying to figure out a better solution for the RESP money. I lose so much of the grants to the MER, at times it hardly seems worthwhile. Any advice on where to invest now that I've picked the investment vehicles? In general my trade fees ($9.95) are better than the MER (1% and up vs. 0.08% for Vanguards S&P ETF) for any investment of $1000 (trade fees are paid twice, MER is annual).

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Re: Canada RESP - $2500 max contribution
« Reply #10 on: December 19, 2016, 11:45:08 AM »
So can someone just clarify, I'm currently doing RESP contribs which are roughly the annual max, and which is entirely covered by CTB.

I could switch to putting 'my own' money into the RESP, and put the CTB money into a trust account in my daughter's name; she then gets the personal allowance, I file a tax return in her name which basically says: Income $x in dividends, and it's 'tax free' because her income is obviously under the ~$11k threshold?

There's no other benefit to it being in 'her name' except any cap gains are also hers; were I to invest in my name for 20 years, then sell and give to her, I'd have to pay cap gains.

If I'm smart I could sell and rebuy her stuff in 14, 15 years to reset the cost base while she is still earning nothing very much and hence all the growth is also 'tax free'? That's the point?

Yes, that's my understanding. If you plan on having a lower income later on, I guess the capital gains tax avoidance wouldn't save you much. If you have a higher income now, then the dividend part would be great, although if you have the high income you won't get the CTB anyway. There's really a small range of situations where this would work, it seems. For those where it does though, it's free money.

One other issue I'm thinking about is if there are any account fees or trading fees, that'll really cut into the bottom line of this tax arbitrage scheme because the amounts are so low. Personally as I work for a bank I need to have all my family's accounts with them, and they have no good low fee investments available except for the discount brokerage, which is still $10/trade.
Spot on analysis. 

One difference is within my RESP I have limited investments - mutual funds through RBC. With the Direct Investing I can buy low fee ETF's. Honestly I'm still trying to figure out a better solution for the RESP money. I lose so much of the grants to the MER, at times it hardly seems worthwhile. Any advice on where to invest now that I've picked the investment vehicles? In general my trade fees ($9.95) are better than the MER (1% and up vs. 0.08% for Vanguards S&P ETF) for any investment of $1000 (trade fees are paid twice, MER is annual).

Why not switch to Questrade? Free to buy, in any quantity, of any ETF. I regularly buy a single share of the ETFs I hold.
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Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #11 on: December 19, 2016, 01:07:19 PM »

Why not switch to Questrade? Free to buy, in any quantity, of any ETF. I regularly buy a single share of the ETFs I hold.
Thank you daverobev, I didn't know I could hold an RESP inside of questrade...I'm glad I asked. Now I feel dumb. Better to feel dumb for a day then be dumb for life I guess.

A single share sounds awesome, its the perfect fit for the CCB money. Its generally a few hundred/month, an auto purchase plan would be great.

I have some days off at Christmas, how can I turn a Questrade account into a stocking stuffer?


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Re: Canada RESP - $2500 max contribution
« Reply #12 on: December 19, 2016, 04:02:18 PM »
Part of the problem is that not all financial institutions allow the grants. Sometimes the lowest fee ones do not allow grants, such as TD.

Here is a list of promoters and what they offer.

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/resp-promoters-list.html#Qs
(No guarantee this is entirely accurate or up to date, but it's a start.)

I don't see Questrade on the list, but from a quick glance at their website looks like grants are allowed. You'd have to double-check.

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Re: Canada RESP - $2500 max contribution
« Reply #13 on: December 19, 2016, 04:57:02 PM »
Part of the problem is that not all financial institutions allow the grants. Sometimes the lowest fee ones do not allow grants, such as TD.

Here is a list of promoters and what they offer.

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/resp-promoters-list.html#Qs
(No guarantee this is entirely accurate or up to date, but it's a start.)

I don't see Questrade on the list, but from a quick glance at their website looks like grants are allowed. You'd have to double-check.

I think you need your eyes testing ;) Qtrade, Quadrus, Questrade Inc, Raymond James Ltd.

Anyway, I can confirm that normal grants happen - I've had an RESP with Questrade for a few years now.
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Re: Canada RESP - $2500 max contribution
« Reply #14 on: December 19, 2016, 09:21:13 PM »
Part of the problem is that not all financial institutions allow the grants. Sometimes the lowest fee ones do not allow grants, such as TD.

Here is a list of promoters and what they offer.

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/resp-promoters-list.html#Qs
(No guarantee this is entirely accurate or up to date, but it's a start.)

I don't see Questrade on the list, but from a quick glance at their website looks like grants are allowed. You'd have to double-check.

I think you need your eyes testing ;) Qtrade, Quadrus, Questrade Inc, Raymond James Ltd.

Anyway, I can confirm that normal grants happen - I've had an RESP with Questrade for a few years now.

I'd definitely do Questrade if I could. Commission free buying would be awesome. It's great they are able to keep costs so low. I guess all those active traders really make it possible for us passive investors to make a killing over the long run!

In my case, my son was born mid year, so I waited until January of the following year and deposited 5k in the RESP, invested it in 2 funds for $20. Then the 1k grant money came 3 months later. It's sitting in cash until this January so I can invest it in a bigger lump. Hardly worth investing 1k for 9 months if you need to pay $10. In hindsight I should have bought a cashable GIC or something which is free to trade...would have made like $8. Whatever.
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Re: Canada RESP - $2500 max contribution
« Reply #15 on: December 19, 2016, 10:07:30 PM »
Hi Prairie Stash,

I feel like an idiot, I just paid the tax on the UCCB money. It would have been awesome to create an account in my infant son's name, and not pay tax on it. I did not know that was possible.

But with the UCCB being cancelled, I don't think we can do this in the future since the new CCB is tax free...right?

Also, if my son has absolutely no income, there's no point filing, right? He won't have part time income until he's 14, at best, so I don't think filing with zeros everywhere would really do anything to his RRSP room.
If you start an investment account then have gains and dividends you need to report it, otherwise the paper trail won't exist and you could be audited and have it taxed in your hands. Its really simple, it should take 10-15 minutes with simple tax or any software program. If they have 0$ income then no, you don't need to file. My daughter will get $3 in interest from her savings account (birthday money etc.), I might not file either unless I get bored. The cool part about filing is the new system keeps records for life, maybe she'll laugh one day at the $3 return that generated $0.54 in RRSP room.   

RRSP room is generated via "earned income", which does not include interest or investment income.

Easy-to-read summary from www.taxplanningguide.ca :

Quote
Your maximum annual RRSP contribution is based on your earned income in the previous year. Earned income includes salaries, employee profit sharing income, business income, disability pensions (issued under the Canada and Quebec pension plans), taxable alimony or maintenance, and rental income. For 2014 and later years, earned income also includes income contributed to an amateur athlete trust (for purposes of determining the RRSP contribution limit of the trust’s beneficiary). Your earned income is reduced by business losses, rental losses, union dues, employment expenses, and deductible alimony or maintenance paid. Retiring allowances, investment income, capital gains, pension income and business income earned as a limited partner are not classified as earned income.

CRA's instructions for calculating earned income
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Re: Canada RESP - $2500 max contribution
« Reply #16 on: December 23, 2016, 11:09:16 AM »
following

Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #17 on: December 23, 2016, 12:21:53 PM »

Why not switch to Questrade? Free to buy, in any quantity, of any ETF. I regularly buy a single share of the ETFs I hold.
I took your advice and checked them out by opening a practice account to see what is like, then put it aside till the week after Christmas to finish setting up the transfers. So questrade phoned me up today to get me moving on this (I was surprised to hear a person). If I transfer in $1000 I have to do a trade every quarter to avoid account fees, I replied I typically max out in January/february so trading regularly is a hassle. The solution was to have $5000, there's no fees to the account then. I'm sad it took a lot of talking to get to that point.

I'll pay $4.95-9.95 when I sell but purchasing Vanguard ETF is free, as confirmed by the sales pitch. Its everything you've said, I'm pretty pumped about my Christmas holiday treat of opening a new account!

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Re: Canada RESP - $2500 max contribution
« Reply #18 on: December 23, 2016, 12:36:28 PM »
Thanks for the tips, following.
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Re: Canada RESP - $2500 max contribution
« Reply #19 on: December 23, 2016, 12:36:41 PM »

Why not switch to Questrade? Free to buy, in any quantity, of any ETF. I regularly buy a single share of the ETFs I hold.
I took your advice and checked them out by opening a practice account to see what is like, then put it aside till the week after Christmas to finish setting up the transfers. So questrade phoned me up today to get me moving on this (I was surprised to hear a person). If I transfer in $1000 I have to do a trade every quarter to avoid account fees, I replied I typically max out in January/february so trading regularly is a hassle. The solution was to have $5000, there's no fees to the account then. I'm sad it took a lot of talking to get to that point.

I'll pay $4.95-9.95 when I sell but purchasing Vanguard ETF is free, as confirmed by the sales pitch. Its everything you've said, I'm pretty pumped about my Christmas holiday treat of opening a new account!

Yeah, they really don't want accounts with not much money in. They will close an account that falls under $1k immediately (not if you've got investments I think, but if you sell everything and withdraw most of it, boom, account closed). It's $5k combined, by the way, to avoid the quarterly fee. It's a bit silly - why pay a $10 fee when you could buy a $10 ETF share.

They are very active in getting people signed up - they have rep accounts on reddit and RFD, to name two.

Their end of year stuff isn't great (don't think they keep your acb correctly), but that's only relevant to unregistered accounts.

*Edit* I did have a referral code for Questrade somewhere, pm me if anyone wants it! But do check out any promotions directly with Questrade too, they are better than the referral bonus sometimes.
« Last Edit: December 23, 2016, 12:38:45 PM by daverobev »
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #20 on: January 03, 2017, 07:15:08 PM »
Part of the problem is that not all financial institutions allow the grants. Sometimes the lowest fee ones do not allow grants, such as TD.

Here is a list of promoters and what they offer.

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/resp-promoters-list.html#Qs
(No guarantee this is entirely accurate or up to date, but it's a start.)

I don't see Questrade on the list, but from a quick glance at their website looks like grants are allowed. You'd have to double-check.
TD allows the basic grant. Not the supplemental ones.

( although that may be changing).

The max for RESP grant per year is up to $5000. If you have contribution room and did not just create it for a 16 year old or older. 

ToTheMoon

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Re: Canada RESP - $2500 max contribution
« Reply #21 on: January 03, 2017, 08:36:29 PM »
Following.  Some great information here - be nice to find it again.  I really wish there was a Canadian sub-forum where all these tidbits could be posted in one place. . .

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Re: Canada RESP - $2500 max contribution
« Reply #22 on: January 04, 2017, 08:47:24 AM »
Following too, I've been thinking about this for a while...
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Re: Canada RESP - $2500 max contribution
« Reply #23 on: February 28, 2017, 06:29:17 PM »
Awesome info! Flowing too.

Also noticed there is an additional match (over the 20% which is the Canada education savings grant - CESG rate) on the first $500 for lower income families

"For 2016, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:

40% (extra 20% on the first $500), if the child's family has qualifying net income for the year of $45,282 or less; or
30% (extra 10% on the first $500), if the child's family has qualifying net income for the year that is more than $45,282 but is less than $90,563."
(http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/cesp-pcee/csg-eng.html)

So for families that are planning to be financially independent and retired while they can still contribute to their child's RESP, that might make it interesting to contribute then depending on how the stash money used for yearly spending is allocated for tax purposes.

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Re: Canada RESP - $2500 max contribution
« Reply #24 on: February 28, 2017, 06:38:21 PM »
^wow, never heard that before.  Thanks for sharing.
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Re: Canada RESP - $2500 max contribution
« Reply #25 on: March 06, 2017, 08:49:56 PM »
However there's a missed opportunity with the UCCB, its the only income your kids have and can actually be invested in their name. That means all capital gains/dividends are taxed in their hands (not the parents)

Actually, if an income-producing property is purchased with money loaned or gifted to a related minor, the income from the property will normally be attributed back to the person giving the gift or loan. However, capital gains from the property will be considered capital gains of the minor.

Here is the note straight from the CRA website about the attribution rules of the Canada child benefit money (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/121/menu-eng.html):

Quote
Generally, when you invest your money in your child's name, you must report the income from those investments. However, if you deposited Canada child benefit payments into a bank account or trust in your child's name, the interest earned on those payments is your child's income.

daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #26 on: March 07, 2017, 06:08:47 PM »
However there's a missed opportunity with the UCCB, its the only income your kids have and can actually be invested in their name. That means all capital gains/dividends are taxed in their hands (not the parents)

Actually, if an income-producing property is purchased with money loaned or gifted to a related minor, the income from the property will normally be attributed back to the person giving the gift or loan. However, capital gains from the property will be considered capital gains of the minor.

Here is the note straight from the CRA website about the attribution rules of the Canada child benefit money (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/121/menu-eng.html):

Quote
Generally, when you invest your money in your child's name, you must report the income from those investments. However, if you deposited Canada child benefit payments into a bank account or trust in your child's name, the interest earned on those payments is your child's income.

Question: If I want to do a DRIP share for my child, using 'CTB money', how 'firewalled' does the money have to be? If the money comes in to our family general chequing account, and then I write a cheque and mail it to a stock transfer company/custodian in order to buy more shares, does that 'count' as being the child's income, even though it's 'passed through my hands'?
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Re: Canada RESP - $2500 max contribution
« Reply #27 on: March 07, 2017, 11:45:09 PM »
It is easier to have the CTB go directly into the trust, but if you can show that the exact same amount as CTB was transferred monthly, there should be no arguments.   The challenge is writing only 1 cheque per year, or for amounts different than the CTB.

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Re: Canada RESP - $2500 max contribution
« Reply #28 on: March 13, 2017, 12:47:10 PM »
I'm confused now; banks and Computershare are telling me that stuff (stock, mutual funds) can't be held by a minor. If it's in a trust, the trust would be taxed. If held by a custodian, it gets attributed to the custodian.

What should I be doing with this cash to have it invested?

*Edit* hmm hold on, going back to that CRA link... I need to set up a trust.

How does one do that.. more searching required.
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #29 on: March 13, 2017, 12:53:51 PM »
I'm confused now; banks and Computershare are telling me that stuff (stock, mutual funds) can't be held by a minor. If it's in a trust, the trust would be taxed. If held by a custodian, it gets attributed to the custodian.

What should I be doing with this cash to have it invested?

*Edit* hmm hold on, going back to that CRA link... I need to set up a trust.

How does one do that.. more searching required.

You can hold Canada Savings Bonds, and other cash-like investments in the minor's name.   Or, as the custodian, pick something that has very little income and all capital gains growth, and the capital gains are taxed to the minor.  Yes, the income and dividends are taxed to you, but if it does not generate much, in favor of capital gains, then that is fine.

I think you will find that trust set up costs outweigh the tax advantages for CTB level of investing.

daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #30 on: March 13, 2017, 01:04:55 PM »
Ok, so. I need an informal trust, to hold the shares; but I'm not sure if I need multiple accounts to do it.

All the banks, I think, offer free chequing accounts for minors with no age restrictions. CTB money could go into that.

Then, with that account, we-the-trustees? or custodians at this point/this account?, can buy and then DRIP shares. Does the Computershare account also need to be a trust account - it must, because here's where it matters, where dividends are paid.

So I go and buy shares "DaveRobEv in Trust For Tiny1 RobEv" and "DaveRobEv in Trust For Tiny2 RobEv" with the money from the minor's chequing account. Is that all that needs doing?
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daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #31 on: March 13, 2017, 01:06:03 PM »
I'm confused now; banks and Computershare are telling me that stuff (stock, mutual funds) can't be held by a minor. If it's in a trust, the trust would be taxed. If held by a custodian, it gets attributed to the custodian.

What should I be doing with this cash to have it invested?

*Edit* hmm hold on, going back to that CRA link... I need to set up a trust.

How does one do that.. more searching required.

You can hold Canada Savings Bonds, and other cash-like investments in the minor's name.   Or, as the custodian, pick something that has very little income and all capital gains growth, and the capital gains are taxed to the minor.  Yes, the income and dividends are taxed to you, but if it does not generate much, in favor of capital gains, then that is fine.

I think you will find that trust set up costs outweigh the tax advantages for CTB level of investing.

Ah, the whole point of this (for me) is to use the CTB money, which is attributable entirely to the child.
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #32 on: March 13, 2017, 01:11:47 PM »
I'm confused now; banks and Computershare are telling me that stuff (stock, mutual funds) can't be held by a minor. If it's in a trust, the trust would be taxed. If held by a custodian, it gets attributed to the custodian.

What should I be doing with this cash to have it invested?

*Edit* hmm hold on, going back to that CRA link... I need to set up a trust.

How does one do that.. more searching required.

You can hold Canada Savings Bonds, and other cash-like investments in the minor's name.   Or, as the custodian, pick something that has very little income and all capital gains growth, and the capital gains are taxed to the minor.  Yes, the income and dividends are taxed to you, but if it does not generate much, in favor of capital gains, then that is fine.

I think you will find that trust set up costs outweigh the tax advantages for CTB level of investing.

Ah, the whole point of this (for me) is to use the CTB money, which is attributable entirely to the child.

Putting CTB into bonds , or capital growth stocks, in minor's name would accomplish that..

Your custodian example holds true from what I know of the tax requirements -- as long as it is the child's income (e.g., CTB and babysitting money and investment income from that), it should be attributed fully to the child.  The challenge is that minors apparently can't hold equities directly through the investment companies.   

Note, the CAN own real estate..!   
They can also loan you money at prescribed rates of interest.   Look into that potential, too.    Can you pay them 5% interest for a loan?  (and you do what you want with the money, but pay them the interest?)

daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #33 on: March 13, 2017, 01:21:09 PM »
I'm confused now; banks and Computershare are telling me that stuff (stock, mutual funds) can't be held by a minor. If it's in a trust, the trust would be taxed. If held by a custodian, it gets attributed to the custodian.

What should I be doing with this cash to have it invested?

*Edit* hmm hold on, going back to that CRA link... I need to set up a trust.

How does one do that.. more searching required.

You can hold Canada Savings Bonds, and other cash-like investments in the minor's name.   Or, as the custodian, pick something that has very little income and all capital gains growth, and the capital gains are taxed to the minor.  Yes, the income and dividends are taxed to you, but if it does not generate much, in favor of capital gains, then that is fine.

I think you will find that trust set up costs outweigh the tax advantages for CTB level of investing.

Ah, the whole point of this (for me) is to use the CTB money, which is attributable entirely to the child.

Putting CTB into bonds , or capital growth stocks, in minor's name would accomplish that..

Your custodian example holds true from what I know of the tax requirements -- as long as it is the child's income (e.g., CTB and babysitting money and investment income from that), it should be attributed fully to the child.  The challenge is that minors apparently can't hold equities directly through the investment companies.   

Note, the CAN own real estate..!   
They can also loan you money at prescribed rates of interest.   Look into that potential, too.    Can you pay them 5% interest for a loan?  (and you do what you want with the money, but pay them the interest?)

Real estate, good grief - even with the max $6.4k a year it'd be a while before they could buy a house!!

Ok, so plan is this:

Open chequing accounts in their names (with us parents as custodians or trustees);

get CTB money into chequing account;

buy starter DRIP share "DaveRobEv in trust for Child Name" using money in chequing account;

register on Computershare/CanStockTransfer;

set up recurring purchases from chequing account.

Sorted? All above board, no attribution to me. And, I think, if my mum (who lives in France) gives them money, and I put that *directly* into their accounts, that also doesn't get attributed back to her because it can't.
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #34 on: March 13, 2017, 02:25:19 PM »


Real estate, good grief - even with the max $6.4k a year it'd be a while before they could buy a house!!

Ok, so plan is this:

Open chequing accounts in their names (with us parents as custodians or trustees);

get CTB money into chequing account;

buy starter DRIP share "DaveRobEv in trust for Child Name" using money in chequing account;

register on Computershare/CanStockTransfer;

set up recurring purchases from chequing account.

Sorted? All above board, no attribution to me. And, I think, if my mum (who lives in France) gives them money, and I put that *directly* into their accounts, that also doesn't get attributed back to her because it can't.

Firstly - real estate, 10k may buy you 10% ownership in an apartment in many locations..

The aunt suggestion -- I think that will not work out well...   all monetary gifts that earn income have the income attributed back to the giver until the child turns 18.  As the aunt money is clearly NOT the child's own income, and the foreign aspect makes it hard to attribute, someone may just decide that it was a gift to you, as the parent....   Maybe if they were teens, and received cash and put it in themselves...but if you are facilitating it, and they are quite young... too many what if's....   Instead, put that money into an RESP for the tax deferred / tax avoidance growth you are looking for, and it is easy with CRA.

Your suggestion of being custodian investing of kids' incomes (CTB) should work, but don't be surprised if you need to write a letter / show trace-ability of the money to have it pass muster if asked.

Lastly --   Why are you looking into this?  I reviewed it for our kids and dismissed it as not being better than our RESP plan (partly because we received so little CTB and UCB due to our incomes, but that may not be true for you)...

I assume that you are planning to either over-fund their RESP past $50k maximum, (or at least past the $18k-$36k limit each for CESG funds), and / or you don't think they will go to school, so you want them to have a tax-reduced money account that they can use for anything they choose in future?

Obviously, first build a plan around maxing out the RESP "free money" while they are minors,  if you think they are likely to have any sort of post- secondary. 

That means creating a plan to put between $18k and $36k each into their RESP's to max out the free money... if you can do that and build a low tax investment account in their names, that sounds great.    For us, we decided that our education savings goal was less than $36k each. 

Note -- As long as they take one full year (2 semesters) of post-secondary (FT) education, before the RESP plan is 35 years old, you can unlock all the money, for any purpose, really, and it is all tax free growth until withdrawn, when it is taxed in their names  (similar to your CTB plan).




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Re: Canada RESP - $2500 max contribution
« Reply #35 on: March 13, 2017, 03:18:53 PM »


Real estate, good grief - even with the max $6.4k a year it'd be a while before they could buy a house!!

Ok, so plan is this:

Open chequing accounts in their names (with us parents as custodians or trustees);

get CTB money into chequing account;

buy starter DRIP share "DaveRobEv in trust for Child Name" using money in chequing account;

register on Computershare/CanStockTransfer;

set up recurring purchases from chequing account.

Sorted? All above board, no attribution to me. And, I think, if my mum (who lives in France) gives them money, and I put that *directly* into their accounts, that also doesn't get attributed back to her because it can't.

Firstly - real estate, 10k may buy you 10% ownership in an apartment in many locations..

The aunt suggestion -- I think that will not work out well...   all monetary gifts that earn income have the income attributed back to the giver until the child turns 18.  As the aunt money is clearly NOT the child's own income, and the foreign aspect makes it hard to attribute, someone may just decide that it was a gift to you, as the parent....   Maybe if they were teens, and received cash and put it in themselves...but if you are facilitating it, and they are quite young... too many what if's....   Instead, put that money into an RESP for the tax deferred / tax avoidance growth you are looking for, and it is easy with CRA.

Your suggestion of being custodian investing of kids' incomes (CTB) should work, but don't be surprised if you need to write a letter / show trace-ability of the money to have it pass muster if asked.

Lastly --   Why are you looking into this?  I reviewed it for our kids and dismissed it as not being better than our RESP plan (partly because we received so little CTB and UCB due to our incomes, but that may not be true for you)...

I assume that you are planning to either over-fund their RESP past $50k maximum, (or at least past the $18k-$36k limit each for CESG funds), and / or you don't think they will go to school, so you want them to have a tax-reduced money account that they can use for anything they choose in future?

Obviously, first build a plan around maxing out the RESP "free money" while they are minors,  if you think they are likely to have any sort of post- secondary. 

That means creating a plan to put between $18k and $36k each into their RESP's to max out the free money... if you can do that and build a low tax investment account in their names, that sounds great.    For us, we decided that our education savings goal was less than $36k each. 

Note -- As long as they take one full year (2 semesters) of post-secondary (FT) education, before the RESP plan is 35 years old, you can unlock all the money, for any purpose, really, and it is all tax free growth until withdrawn, when it is taxed in their names  (similar to your CTB plan).
The benefit of the CCB plan is it functions exactly like a TFSA for minors. The RESP functions as an RRSP, with the tax refund of the RRSP being equivalent to the government top up. If done correctly you complete capital gains harvesting from age 14-18, when they're on the 0% tax bracket. This resets the ACB to make all the money "Tax-Free" upon age 18. The merits of either plan depend on the parents preference to have an education fund or a TFSA equivalent.

As an example, if you are inclined to buy your kids a house and set it up now, in addition to the RESP if desired, the down payment would have accrued gains not taxable in your hands. You can have both, its just a smoother tax strategy to avoid saving money for their house and having it taxed in your hands.  The CCB investment is not meant for education, its meant for whatever you choose.

daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #36 on: March 13, 2017, 03:25:10 PM »
Re: my "aunt" (mother? lol), I got that from:

Quote
An ITF is an income-splitting vehicle for adults and minors no matter what the source of funds.  FALSE – There are some exceptions where the investment income will always be taxed in the minor’s hands, as long as the child is a Canadian resident. If the source of funds is those of the child (Child Tax Benefit/Inheritance from a deceased parent or grandparent, gift to the child from a non-resident contributor) then all investment income will be taxed in the hands of the minor, with no attribution back to an adult donor or trustee.

http://www.advisor.ca/tax/estate-planning/in-trust-for-accounts-facts-and-fallacies-71779

And: Yes, I figure if we put in $165/child/month = $1980 a year to the RESP, that will get us to the maximum eventually. Might as well do something more.... I'm on the fence, because I know just giving your children large chunks of cash tends to lead them to striving less... but on the other hand, having a house deposit when you get to the right age is really nice.

Where would I go to find part ownership of apartments? Aren't you then screwed if large repairs are needed - doesn't the repair money have to come from inside the trust?
« Last Edit: March 13, 2017, 03:31:09 PM by daverobev »
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #37 on: March 13, 2017, 04:38:32 PM »
Where would I go to find part ownership of apartments?

Family... typically... maybe a small investor pool of people that you know.

You can set up how the repairs are funded and by whom when you set it up.

Good infolink on the non-resident gifting of money...  I have seen tax interpretation bulletins that state where it is supposed to be one way, but ends up being automatically allocated another, and you need to argue / fight for it.   Such as if the money ever lands in your hands at all, it may be hard, but as you say - direct contributions to kids' accounts.

Prairie Stash -- your points are good, but Daverobev was specifically limiting himself to the CTB monies of $2k per year, so buying a home for investment purposes may be out of the picture for him, but it is indeed a great way to transfer assets to kids, tax advantaged / avoided, through capital gains, IMO.

That means, at the funding levels he is looking at, maxing out the RESP first, is a good idea...before the CTB plan. After all,  RESP= 20% to 40% CESG match with tax deferred growth then reduced (ie. very low tax) when claimed, versus CTB Plan= tax avoided / tax free now, no top ups.   The one catch for RESP is the need for the student (or at least one of his two kids) to register in at least 2 semesters schooling full time to collect all the CESG money, before  the plan turns 35 years old, which is a pretty low barrier to claiming the grant money.

If, on the other hand, Daverobev is looking to max out RESP for the matching funds, AND investing in CTB plan, that is even better. (to do both).     

note -- CCB plan is not QUITE like TFSA -- the tax free part of it relies on the kid not making more then $11k or so per year, unlike the TFSA's protected structure, but at the end of the day, close enough for practical purposes.

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Re: Canada RESP - $2500 max contribution
« Reply #38 on: March 13, 2017, 04:57:54 PM »
Ah, our CTB is a little more than $2k, but not too much. The ~$2k is what we're going to put into the RESP. But, we can just fund the RESP from our own money, and put the CTB (in its entirety, of course, because otherwise it's not 'irrevocable') into other investments.
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Re: Canada RESP - $2500 max contribution
« Reply #39 on: March 13, 2017, 08:45:51 PM »

note -- CCB plan is not QUITE like TFSA -- the tax free part of it relies on the kid not making more then $11k or so per year, unlike the TFSA's protected structure, but at the end of the day, close enough for practical purposes.
I challenge you to do the math on the CCB as a pseudo-TFSA account and the level of income necessary for it to be taxable. I think you'll be surprised at how large the account would be before it starts failing to act like a TFSA.

Keep in mind, you can control when taxes are paid. If you want you could defer the taxes to age 65 if you plan it correctly.

GreenQueen

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Re: Canada RESP - $2500 max contribution
« Reply #40 on: March 14, 2017, 02:46:10 PM »
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daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #41 on: March 15, 2017, 11:29:19 AM »
I'm going in to set up the chequing accounts for the sproglings tomorrow.

Question: We have two children. It seems that CTB can only go to one place. That is currently our joint chequing account.

If I put a same day (ie, cash comes in from Canadian Government, thank you very much) transfer (to the new chequing accounts in trust for sproglings), each getting an amount, does that 'count' as 'you depositing into an account in trust...'?

Does it matter if they both get the same amount, and whether that amount is not the entire CTB amount?

So, say CTB = $500 a month, and I decide we should put $150 for each child into their accounts. Does that pass muster? Or do I have to put exactly $250 into each account? Or something else?
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #42 on: March 15, 2017, 12:35:50 PM »

note -- CCB plan is not QUITE like TFSA -- the tax free part of it relies on the kid not making more then $11k or so per year, unlike the TFSA's protected structure, but at the end of the day, close enough for practical purposes.
I challenge you to do the math on the CCB as a pseudo-TFSA account and the level of income necessary for it to be taxable. I think you'll be surprised at how large the account would be before it starts failing to act like a TFSA.

Keep in mind, you can control when taxes are paid. If you want you could defer the taxes to age 65 if you plan it correctly.

Agreed.  That's what I meant about it being not QUITE like a TFSA, but is really the same for pratical (taxation) purposes.

Now -- you have me thinking about the idea upthread to purchase a house for your kids, and they have a house, at their capital gains rate when they need one.   You mentioned a strategy to shed the tax at age 14-18, which at first glance seemed exactly right... but then I wondered how to do this with property.

Can you give me an example?  It would be really neat to see how this works...   Or are you thinking more a investment in real estate shares or fund, (not a deeded property) or something that is capital gains only, that can be sold off in pieces over several years, for tax optimization?


Thanks

Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #43 on: March 15, 2017, 12:40:53 PM »
I'm going in to set up the chequing accounts for the sproglings tomorrow.

Question: We have two children. It seems that CTB can only go to one place. That is currently our joint chequing account.

If I put a same day (ie, cash comes in from Canadian Government, thank you very much) transfer (to the new chequing accounts in trust for sproglings), each getting an amount, does that 'count' as 'you depositing into an account in trust...'?

Does it matter if they both get the same amount, and whether that amount is not the entire CTB amount?

So, say CTB = $500 a month, and I decide we should put $150 for each child into their accounts. Does that pass muster? Or do I have to put exactly $250 into each account? Or something else?

I would set up a separate savings account, and have the CTB deposited there, that you use only for the kids cash flow, if you can.  (not sure how other government monies are allocated, if CRA only lets you have one account on file, or one for taxes and one for CTB)   If you want to use some of it for family expenses now, then just pull that amount as needed from it into the household account.   Being exceptionally clear about the cash flow will help a lot if you are ever asked.   

In reality, there is a great chance that as long as the amount is less or equal to the CTB payments you get in a year, that the question will never come up -- rather, you would need to claim large kid income well beyond the CTB amount or have something else going on on your tax return to have it worth the bother to flag (other than random audit).   


daverobev

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Re: Canada RESP - $2500 max contribution
« Reply #44 on: March 15, 2017, 12:48:55 PM »
I'm going in to set up the chequing accounts for the sproglings tomorrow.

Question: We have two children. It seems that CTB can only go to one place. That is currently our joint chequing account.

If I put a same day (ie, cash comes in from Canadian Government, thank you very much) transfer (to the new chequing accounts in trust for sproglings), each getting an amount, does that 'count' as 'you depositing into an account in trust...'?

Does it matter if they both get the same amount, and whether that amount is not the entire CTB amount?

So, say CTB = $500 a month, and I decide we should put $150 for each child into their accounts. Does that pass muster? Or do I have to put exactly $250 into each account? Or something else?

I would set up a separate savings account, and have the CTB deposited there, that you use only for the kids cash flow, if you can.  (not sure how other government monies are allocated, if CRA only lets you have one account on file, or one for taxes and one for CTB)   If you want to use some of it for family expenses now, then just pull that amount as needed from it into the household account.   Being exceptionally clear about the cash flow will help a lot if you are ever asked.   

In reality, there is a great chance that as long as the amount is less or equal to the CTB payments you get in a year, that the question will never come up -- rather, you would need to claim large kid income well beyond the CTB amount or have something else going on on your tax return to have it worth the bother to flag (other than random audit).

A separate account in addition to the two new accounts? Uuuugh. I'd rather not. But I guess we could (assuming the bank has a free one we can use).

But, in bold - ah, you mean from the new savings acct, not the childrens'. The point with this 'giving' money is that it has to be 'irrevocable' in order for it to be in trust, we can't just take it back. But, if it's in the temp/holding account before it goes into theirs, then yeah that makes sense.
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Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #45 on: March 15, 2017, 02:27:17 PM »
Yeah, just a free savings account, for temporary holding / pass through.   Very easy to pull the cash details on, as you will only have a couple of transactions a month.

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Re: Canada RESP - $2500 max contribution
« Reply #46 on: March 15, 2017, 03:24:25 PM »

note -- CCB plan is not QUITE like TFSA -- the tax free part of it relies on the kid not making more then $11k or so per year, unlike the TFSA's protected structure, but at the end of the day, close enough for practical purposes.
I challenge you to do the math on the CCB as a pseudo-TFSA account and the level of income necessary for it to be taxable. I think you'll be surprised at how large the account would be before it starts failing to act like a TFSA.

Keep in mind, you can control when taxes are paid. If you want you could defer the taxes to age 65 if you plan it correctly.

Agreed.  That's what I meant about it being not QUITE like a TFSA, but is really the same for pratical (taxation) purposes.

Now -- you have me thinking about the idea upthread to purchase a house for your kids, and they have a house, at their capital gains rate when they need one.   You mentioned a strategy to shed the tax at age 14-18, which at first glance seemed exactly right... but then I wondered how to do this with property.

Can you give me an example?  It would be really neat to see how this works...   Or are you thinking more a investment in real estate shares or fund, (not a deeded property) or something that is capital gains only, that can be sold off in pieces over several years, for tax optimization?


Thanks
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/use-the-canada-child-benefit-to-invest-in-your-childrens-education/article32173058/
Go to the bottom of the article for a chart showing it clearly.

Set up an account in-trust with Questrade to buy ETF's. Presumably any money invested will have some capital gains and dividends, lets say $100,000 by age 14 (being generous for illustration purposes).  Lets assume it was $20k dividends and $80K capital. From age 1-14 you will have filed taxes, on behalf of the minor, declaring all the dividends. The tax, at 0% marginal rate, has been paid.

Now the fun trick. Sell stock A to generate capital gains of $20,000 at age 14 (through 18), buy a similar ETF, B. You declare the gains, by filling in the tax form, and pay the 0% marginal rate. The ACB on stock B will include the gains, when you go to sell it you'll only need to pay the gains made from age 14, not from age 2. If the child earns income then decrease the amount of stock sold accordingly, that's why I recommend starting early just to cycle the money.

Its legal money laundering, you are paying all taxes owed. I'm not sure how doing it with property vs. an ETF would make a difference, to me the ETF is easier. Make sure you file taxes every year, the paper trail needs to be established early on. In some ways the dividends help establish the tax records, I lean towards having some.

For the record I was 15 the first time I filed taxes, minors are legally required to file in certain cases. It allowed my employer to deduct my wages without issue, if his business was audited my tax records verified his expenses.

Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #47 on: March 15, 2017, 03:41:22 PM »
Okay,

"Set up an account in-trust with Questrade to buy ETF's. Presumably any money invested will have some capital gains and dividends, lets say $100,000 by age 14 (being generous for illustration purposes).  Lets assume it was $20k dividends and $80K capital. From age 1-14 you will have filed taxes, on behalf of the minor, declaring all the dividends. The tax, at 0% marginal rate, has been paid. "


Note, The dividends would be taxed at the parent's rate, each year, not at zero, unless you are only talking about investing the CTB or child's own income monies...  and then $100k would indeed be generous..requiring an 18% annualized return on $2000 per year from age 14 to 18....


My question was related to your earlier comment about buying your kids a home when they are babies (presumably not with CTB as you need more money than this to buy a home), transferring it to their names, so that they have a home at their capital gains when adult....  and how to shed the taxes to their rates at ages 14-18, on a deeded property (in my imagination, without selling it).   

I am missing something here...  I don't know how to do it, but am curious, so I wanted to know.

No argument about kids tax returns - I have been filing my daughter's since age 15 or so. 


Prairie Stash

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Re: Canada RESP - $2500 max contribution
« Reply #48 on: March 15, 2017, 04:05:57 PM »
Okay,

"Set up an account in-trust with Questrade to buy ETF's. Presumably any money invested will have some capital gains and dividends, lets say $100,000 by age 14 (being generous for illustration purposes).  Lets assume it was $20k dividends and $80K capital. From age 1-14 you will have filed taxes, on behalf of the minor, declaring all the dividends. The tax, at 0% marginal rate, has been paid. "


Note, The dividends would be taxed at the parent's rate, each year, not at zero, unless you are only talking about investing the CTB or child's own income monies...  and then $100k would indeed be generous..requiring an 18% annualized return on $2000 per year from age 14 to 18....


My question was related to your earlier comment about buying your kids a home when they are babies (presumably not with CTB as you need more money than this to buy a home), transferring it to their names, so that they have a home at their capital gains when adult....  and how to shed the taxes to their rates at ages 14-18, on a deeded property (in my imagination, without selling it).   

I am missing something here...  I don't know how to do it, but am curious, so I wanted to know.

No argument about kids tax returns - I have been filing my daughter's since age 15 or so.
The dividends in the child's account will be taxed in the child's hands if the money comes from CTB. I'm only discussing CTB money, no other sources are allowed (except for that weird foreign gift thing). The transference is a separate issue, that's a separate issue from the RESP/CCB taxable account strategy.

You wouldn't buy a house at age 1. You buy ETF's, the funds grow until age 18, you do some ETF churn, then the funds are free to buy any house you want. If your life plan involves purchasing houses for your children it shifts the tax burden from your savings onto them. You don't have to cash in at 18 of course, just an arbitrary number

Some people allocate CCB money into RESP accounts and then save their own money for their kids down payment. By switching the way the money was transferred you can save overall taxes for everyone.

Goldielocks

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Re: Canada RESP - $2500 max contribution
« Reply #49 on: March 15, 2017, 06:09:22 PM »
Thanks,  I read this part wrong, and I was trying to puzzle it out... how to have a house with downpayment and accrued gains that you could sell off in chunks starting at age 14...(per the other post)   I see now that you were talking about two different things.

"As an example, if you are inclined to buy your kids a house and set it up now, in addition to the RESP if desired, the down payment would have accrued gains not taxable in your hands.   "