Is your child starting or heading back to a post-secondary school this fall?Is your child starting or heading back to a post-secondary school this fall?

You might be interested to know that while most parents in Canada contribute toward their child's higher education (76%), students in Canada are the most likely in the world to help finance their own education (42% vs a global average of 15%). This is according to a recent global study commissioned by HSBC Group — The Value of Education: Higher and Higher — based on a survey of more than 8,400 parents across 15 countries and territories worldwide.

Parents and Education

The survey also made the following discoveries about Canadian parents and education:

1. Our geography shapes our learning. Parents in Canada are the most likely to say they'd like their children to study natural and physical sciences, and amongst the least likely to want them to study business, management and finance (3% vs. global average of 11%). Other subjects that aren't popular amongst Canadian parents include politics, music, and marketing.
2. The maple syrup bottle is more than half full. Just over three-quarters of parents in Canada (77%) say they're optimistic about their children fulfilling their potential.
3. Parents just want their kids to be happy. Almost half (46%) of parents in Canada say they don't have specific courses in mind for their children — among the highest proportion across all markets surveyed (and more than twice the global average of 21%).
4. Au revoir! One in four (25%) of parents in Canada say they'd consider sending their children abroad for post-secondary education, well below the global average of 41%. In terms of a preferred destination, 61% say they'd send their child to the United States, followed by the UK (49%) and France (28%).
5. We know the ABCs of education savings. While parents in China are the most financially prepared, with more than half (55%) funding their child's education primarily through general savings, more than a third (35%) of parents in Canada take advantage of specific education savings programs, making them second mostly likely to do so after China (global average of 21%). In contrast, less than 5% of parents in the UK, and 8% in Australia and Mexico, are funding their children's education through a specific education savings plan.

But those ABCs can be confusing. For example, do you know you don't have to wait for the first day of school to take money out of your RESP contributions? You can withdraw from the plans anytime, provided you can prove your child is enrolled in an approved program. Proof can come in the form of an official letter from the university, a course confirmation or a receipt for tuition.

Approved programs include apprenticeships as well as those offered by

• Colleges,
• Universities,
• Collèges d'enseignement général et professionnel (Cegeps – in Quebec),
• Trade schools, and Other institutions certified by the Minister of Employment and Social Development Canada.

Taking money out of an RESP early can give you a head start on tackling the expenses you'll confront, which can take a chunk out of your budget. The HSBC survey showed that Canadian parents contribute approximately $28,364 a year toward each child's education. That amount includes school or university tuition fees, educational books, transport and accommodation. But getting the money out isn't as simple as writing a cheque or making an ATM withdrawal. Because of the complexity of RESP contributions, consult with your accountant to work out the most effective withdrawal strategy.

The Basics of RESPs

If you're the plan's subscriber, the money is yours until you give it to the student. Beneficiaries have no control over the money and can't request payments.

There are two parts to an RESP:

1. The contribution amount is the total you put into the plan. Withdrawals are called post-secondary education payments (PSEs).
2. Accumulated income encompasses everything else, such as grants, capital gains, interest payments and dividends. Withdrawals are called educational assistance payments (EAPs).

When you make a withdrawal, specify whether you want it to come from contributions, accumulated income or both. Contribution withdrawals can be sent to you or the student. EAP withdrawals must generally be sent to the students unless they consent to have them sent to someone else.

How Much Should You Withdraw?

Consider taking out enough money to keep the student going for awhile. Also, students generally aren't as financially savvy as their parents (or whoever subscribed to the plan), so you may want to provide the money in regular payments rather than a lump sum.
For Family RESPs, subscribers can be parents, grandparents or siblings, including adopted children. For individual RESP plans, there generally aren't any restrictions and you and your spouse or common-law partner can be joint subscribers to a single RESP. A subscriber must be a person (corporations, trusts, churches or charities aren't eligible).

Important: One smart move is to deplete accumulated earnings first by withdrawing EAPs before contributions. Contributions remaining in the plan are yours to use as you wish. You can transfer them to another child's plan or withdraw them for personal use.

EAPs left in the plan may require you to refund some Canada Education Savings Grant (CESG) funds. You may have to repay CESG money in other situations, too, such as when a beneficiary doesn't pursue higher education or the plan is terminated. The CESG is money the federal government adds to your RESP. You can earn up to 20% in "core" grants on your contributions up to a maximum lifetime total of $7,200 per child. (There are additional grants for low-income families and in certain provinces.) The grants, contributions and investment income are all tax-sheltered until you take the money out.

Your financial advisor can help you navigate the complexities of this federal tool.

Five Essentials of EAPs

1. They're taxable in the student's hands. As most students have low incomes — and are entitled to various tax credits — there may be little or no tax due. However, if the student is in a co-op program and has two work terms and one school term in the year, it may make more sense to withdraw contributions rather than accumulate income in that year.
2. There's no withholding tax, so you must keep track of the tax due. A T4A slip will be issued by the financial institution at the end of the year for any EAP distributions made during the year.
3. The government generally restricts withdrawals for full-time students to $5,000 in the first 13 weeks of the educational program. There are no limits after that provided the student remains enrolled.
4. If the beneficiary is enrolled in part-time studies, withdrawals are limited to $2,500 for every 13-week enrollment period.
5. EAPs must be used to "further" your child's post-secondary education. Thus, they can be used to pay for tuition, fees, textbooks and reasonable costs for moving, rent, food and transportation. Your RESP provider generally determines what are considered reasonable expenses.

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