Those of you that have opened an RESP for your child and are now wondering if he/she will ever attend post secondary education may be interested in the following change:
- Effective 2013 any investment income earned in the RESP may be transferred on a tax-deferred basis to an RDSP.
To qualify for the tax-free rollover the beneficiary must meet one of the following conditions:
- The beneficiary has a severe and prolonged mental impairment that can reasonably be expected to prevent the beneficiary from pursuing post-secondary education;
- The RESP has been in existence for at least 10 years and each beneficiary is at least 21 years of age and is not pursuing post-secondary education; or
- The RESP has been in existence for more than 35 years.
How are the funds taxed as a result of the rollover?
- When an RESP rollover occurs, contributions in the RESP will be returned to the RESP subscriber (parent or grandparent) on a tax-free basis. As well, Canada education savings grants and Canada learning bonds in the RESP will be required to be repaid to the government. The investment income will be transferred tax free to the RDSP.
If you have set up an RESP and are considering closing it, there is no longer a rush to make a decision. Any income derived from the account can now be used for the child’s benefit in the RDSP.
Refer to the Budget 2012 Registered Disability Savings Plan (RDSP) for more detailed information.