André Lacasse, financial planner at Services financiers Lacasse in Saint-Hubert, a suburb of Montreal, advises without hesitation to separate the family RESP into three individual plans.
“In the other provinces, it’s not a problem, but in Quebec, it’s to be avoided,” he says.
There is the basic 20% federal subsidy and the 10% provincial subsidy. Before paying the Quebec contribution, officials check the net contribution for the year.
If you withdraw $2,500 for the child going to CEGEP and contribute $2,500 for the youngest, the net amount is zero. You lose your grant.
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André Lacasse, financial planner at Services financiers Lacasse
–
Revenu Québec is already aware of this problem.
If Karine decided to no longer contribute for the other children, the question would not arise. But she plans to continue doing so.
When RESPs are individual, they can be transferred between siblings when one decides to drop out of high school.
The planner also advises parents to split the RESP into three equal parts. With fluctuations in investments, it may happen that a child has a higher amount, but when the RESPs are closed, everything can be reviewed and rebalanced, assures André Lacasse.
When the time comes to make withdrawals, you have to be attentive to the tax issue, warns the expert. “In Canada, you don’t pay tax on the first $16,000 of income. Unless the child earns a large salary, it is prudent to take a little more. Because if I save $20,000 for the last one and he doesn’t go to school, the grants will be lost. »
“When the child hasn’t worked all year, it’s worth withdrawing a good amount of money, explaining to the child that part of the money belongs to his brothers and sisters”, suggests André Lacasse .
The capital is not taxable.
Before taking out another mortgage…
The financial planner observes that Karine has very good savings habits. However, she does not have a defined benefit pension plan. “Before going ahead with another mortgage, it would be a good idea to go see her financial planner to calculate how much she needs to put down for her retirement,” he advises.
She must also take the trouble to carefully calculate her budget by noting each expense. The site of the Financial Markets Authority (AMF) offers a tool that will be very useful.
As for the CELIAPP, a new program to finance the purchase of a first home which will be offered from 2023, the detailed rules are not published. We know, however, that Canadians aged 18 and over will be able to deposit $8,000 a year for five years.
However, it is a program that allows, like the RRSP, to reduce the tax payable when filing your income tax.
“A student who earns $8,000 will not have a CELIAPP tax refund,” points out André Lacasse. From the moment the person earns $50,000, they get back 37.12%, it starts to be worth it. »
Condo or rent
Should 17-year-old Léa buy a condo instead of renting an apartment?
“Buying when you’re a minor is complicated,” says André Lacasse.
First of all, the bank will not lend money to someone who has an annual income of $8,000. To be the owner, his tutor must sign the deed of sale. The mother and daughter therefore risk being co-owners.
One day, the mother will have to sell her half of the condo to her daughter and she will have to pay capital gains tax, because it is not her principal residence.
“When buying, there are notary fees for the mortgage and the contract. Then there will still be notary fees on the transfer to write off the old mortgage and make a new one in the daughter’s name only. When the girl sells, there will still be receipt fees to pay,” points out André Lacasse.
“It’s less complicated and cheaper to wait at 18. »
The other important element to consider is the number of years she intends to keep the condo. At 17, who knows where fate will take him when he finishes his studies. Will she have a position right next to her condo or in another city?
When you buy and sell after three years, you don’t have time to amortize the initial costs, unless you are lucky and the value increases enormously.
–
André Lacasse, financial planner at Services financiers Lacasse
–
“Beyond the emotional aspect, you have to take into account the financial aspect,” maintains André Lacasse.
To help Karine and Léa make a decision, the financial planner suggests that they use the AMF tool and enter the exact figures. They will know if it is more profitable to buy or to rent.
“If she found a permanent position next to the condo when she graduated, it would be worth it. But at 17, you don’t know what’s going to happen. »
* Although the case highlighted in this section is real, the first name used is fictitious.
Are you planning a project that requires a wise use of your money? Do you have financial problems?
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Isabelle Dube
The Press
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Situation
Life changes when you become a Cegep student and, sometimes, that of the family has to adjust. This is the case of Léa*, 17, who will have to leave the family nest. His mother, Karine*, has a family Registered Education Savings Plan (RESP) for her three children, ages 10, 13 and 17.
“I was wondering if I could make RESP withdrawals for my daughter while continuing to contribute for the other two children,” Karine wrote by email. What will be the impact on subsidies? Should the RESP be separated? »
The family RESP is currently $41,000. Karine plans to pay $2,500 per child per year until they reach the end of subsidy age.
This 40-year-old single mother also wants to be as fair as possible for her three children. How should she handle withdrawals?
With this entry to CEGEP, another concern arises, that of housing.
Rental housing being rare, I wondered if it was possible and desirable for her to buy, at the age of 17, a condo, let’s say salubrious, with 2 bedrooms, affordable, that we would find near the green metro line in Hochelaga- Maisonneuve in Montreal. She could rent the second bedroom.
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Karine
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“Rather than paying rent for the duration of his studies, she continues, I would lend him the minimum down payment and the initial costs, then I would make the payments for the duration of his studies. One year after the end of her studies, we can assume that she would make me repayments spread out according to her financial capacity or if she decided to sell the condo. »
The father would pay half the normal amount of rent for a room, which is $250 per month.
In this situation, would using the TFSA (tax-free savings account for the purchase of a first home) be a good idea? she asks.
Numbers
Karin, 40 years old
Lea, 17 years old
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Analysis
PHOTO ANDRÉ PICHETTE, LA PRESSE ARCHIVES
André Lacasse, financial planner at Services financiers Lacasse
–
André Lacasse, financial planner at Services financiers Lacasse in Saint-Hubert, a suburb of Montreal, advises without hesitation to separate the family RESP into three individual plans.
“In the other provinces, it’s not a problem, but in Quebec, it’s to be avoided,” he says.
There is the basic 20% federal subsidy and the 10% provincial subsidy. Before paying the Quebec contribution, officials check the net contribution for the year.
If you withdraw $2,500 for the child going to CEGEP and contribute $2,500 for the youngest, the net amount is zero. You lose your grant.
–
André Lacasse, financial planner at Services financiers Lacasse
–
Revenu Québec is already aware of this problem.
If Karine decided to no longer contribute for the other children, the question would not arise. But she plans to continue doing so.
When RESPs are individual, they can be transferred between siblings when one decides to drop out of high school.
The planner also advises parents to split the RESP into three equal parts. With fluctuations in investments, it may happen that a child has a higher amount, but when the RESPs are closed, everything can be reviewed and rebalanced, assures André Lacasse.
When the time comes to make withdrawals, you have to be attentive to the tax issue, warns the expert. “In Canada, you don’t pay tax on the first $16,000 of income. Unless the child earns a large salary, it is prudent to take a little more. Because if I save $20,000 for the last one and he doesn’t go to school, the grants will be lost. »
“When the child hasn’t worked all year, it’s worth withdrawing a good amount of money, explaining to the child that part of the money belongs to his brothers and sisters”, suggests André Lacasse .
The capital is not taxable.
Before taking out another mortgage…
The financial planner observes that Karine has very good savings habits. However, she does not have a defined benefit pension plan. “Before going ahead with another mortgage, it would be a good idea to go see her financial planner to calculate how much she needs to put down for her retirement,” he advises.
She must also take the trouble to carefully calculate her budget by noting each expense. The site of the Financial Markets Authority (AMF) offers a tool that will be very useful.
As for the CELIAPP, a new program to finance the purchase of a first home which will be offered from 2023, the detailed rules are not published. We know, however, that Canadians aged 18 and over will be able to deposit $8,000 a year for five years.
However, it is a program that allows, like the RRSP, to reduce the tax payable when filing your income tax.
“A student who earns $8,000 will not have a CELIAPP tax refund,” points out André Lacasse. From the moment the person earns $50,000, they get back 37.12%, it starts to be worth it. »
Condo or rent
Should 17-year-old Léa buy a condo instead of renting an apartment?
“Buying when you’re a minor is complicated,” says André Lacasse.
First of all, the bank will not lend money to someone who has an annual income of $8,000. To be the owner, his tutor must sign the deed of sale. The mother and daughter therefore risk being co-owners.
One day, the mother will have to sell her half of the condo to her daughter and she will have to pay capital gains tax, because it is not her principal residence.
“When buying, there are notary fees for the mortgage and the contract. Then there will still be notary fees on the transfer to write off the old mortgage and make a new one in the daughter’s name only. When the girl sells, there will still be receipt fees to pay,” points out André Lacasse.
“It’s less complicated and cheaper to wait at 18. »
The other important element to consider is the number of years she intends to keep the condo. At 17, who knows where fate will take him when he finishes his studies. Will she have a position right next to her condo or in another city?
When you buy and sell after three years, you don’t have time to amortize the initial costs, unless you are lucky and the value increases enormously.
–
André Lacasse, financial planner at Services financiers Lacasse
–
“Beyond the emotional aspect, you have to take into account the financial aspect,” maintains André Lacasse.
To help Karine and Léa make a decision, the financial planner suggests that they use the AMF tool and enter the exact figures. They will know if it is more profitable to buy or to rent.
“If she found a permanent position next to the condo when she graduated, it would be worth it. But at 17, you don’t know what’s going to happen. »
* Although the case highlighted in this section is real, the first name used is fictitious.
Are you planning a project that requires a wise use of your money? Do you have financial problems?
–
–
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