RESP Tax Benefits

Last week, the House of Commons approved a private member's bill that would provide tax breaks for RESP contributions despite a lack of support from the minority Conservative government.  The Conservatives, and in particular Finance Minister Jim Flaherty, then asked the Senate (which the Conservatives have suggested should be abolished) to oppose the bill.  The Finance Minister then indicated that there would be a provision in the budget legislation to kill the bill.  Finally, the Conservatives have indicated that they are so strongly opposed to this bill that they would make it a confidence matter, thus forcing the Liberals to either allow the bill to be killed or call an election.

The current RESP (Registered Education Savings Plan) system is based on after-tax dollars.  A parent (or other subscriber who has the parent's permission) may contribute to a plan for one or more children, and a certain percentage of that contribution is matched by the government.  The investments grow tax-free until the child attends some form of post secondary institution, when the withdrawls become viewed as income.  (There are provisions for subscriber withdrawls, cases where the child does not seek post secondary education, and other circumstances in the legislation.)

Under this new bill, the contributions would apply before tax, and would more closely resemble RRSP (Registered Retirement Savings Plan) contributions as far as taxation goes.  The reason for the change is that the current system is only accessible to those with funds available after taxes; the same group that was already able to save for their children's education.  By shifting the tax benefits, it would encourage more families with moderate incomes to make contributions in the hopes of reducing their overall tax payable.

I will set aside the Conservative claim that the bill was "quietly passed" or that the Liberals "sneaked" it in (which is itself foolish political rhetoric).  The bill will cost the government money in the form of lost tax revenue.  However, when compared against the amount of money it loses to defaulted student loans, or simply student loan "forgiveness", the losses are significantly reduced, if not converted into a net gain.

But there is another argument here.  By shifting the contributions to be a tax credit instead of an after-tax expense, they are making it more accessible to the average Canadian.  Post secondary education is not supposed to be the right of the wealthy or the fiscally responsible but rather the right of all Canadians.  This bill provides a step in that direction.

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Comments

[Aerodoq]

Amen. With the rising costs of post-secondary education compared to inflation, this bill might be the only way to ensure that children other than the offspring of the upper-middle-class and above can attend university. It's the best thing to come out of Parliment for the past 2 years and I'm astonished that the Conservatives continue to oppose it. Hmmm, dumbfounded but maybe not surprised.

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