Tax planning should be a year-round affair. But as year-end approaches, now is a particularly good time to review your personal finances and take advantage of any tax planning opportunities that may be available to you before the December 31st deadline.
As we enter the final weeks of 2021, here are some tax tips families with students should consider.
Make RESP contributions:
RESPs allow for tax-efficient savings for children’s post-secondary education. The federal government will pay into an RESP – Canada Education Savings Grant (CESG) – equal to 20% of the first $2,500 of annual RESP contributions per child or $500 annually. While unused CESG room is carried forward to the year the beneficiary turns 17, there are a couple of situations in which it may be beneficial to make an RESP contribution by December 31.
Each beneficiary who has unused CESG carry-forward room can have up to $1,000 of CESGs paid into an RESP annually, with a $7,200 lifetime limit, up to and including the year in which the beneficiary turns 17.
If enhanced catch-up contributions of $5,000 (i.e. $2,500 x 2) are made for just over seven years, the maximum total CESGs of $7,200 will be obtained. If you have less than seven years before your or (grand) child turns 17 and haven’t maximized RESP contributions, consider making a contribution by December 31.
Also, if your or (grand) child turned 15 this year and has never been a beneficiary of an RESP, no CESG can be obtained in future years unless at least $2,000 is contributed to an RESP by the end of the year. Consider making your contribution by December 31 to receive the current year’s CESG and create CESG eligibility for 2022 and 2023.
Take RESP withdrawals for students:
If your or (grand) child is an RESP beneficiary and attended a post-secondary educational institution in 2021, consider having Educational Assistance Payments (EAPs) made from the RESPs before the end of the year. Although the amount of the EAP will be included in the income of the student, if the student has sufficient personal tax credits, the EAP income will be effectively tax-free.
If your or (grand) child is an RESP beneficiary and stopped attending a post-secondary educational institution in 2021, EAPs can only be paid out for up to six months after the student has left the school. You may, therefore, wish to consider having final EAPs made from RESPs of which the student is a beneficiary.
Pay interest on student loans:
You can claim a non-refundable tax credit in 2021 for the amount of interest paid by December 31 on student loans received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Apprentice Loans Act or a similar provincial or territorial government law. Note that while only the student can claim the student loan interest credit, the interest on the loan itself can be paid either by the student or by someone related to the student, such as a (grand) parent.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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