Here is some good news for parents who wants to save for their kids education, if a private member bill becomes law.

However, the Harper Government might not like this bill to pass.




http://www.thestar.com/Business/article/310265


Commons approves tax breaks on RESPs

Private member's bill would treat education savings like RRSPs

Mar 07, 2008 04:30 AM
Bruce campion-smith
and James daw
Star Reporters

Saving for your child's education could soon earn you a big tax break.

The House of Commons has quietly endorsed a private members' bill that could have big impact for parents trying to collect the cash to send kids to university or college.

If the bill becomes law, parents would be allowed to contribute up to $5,000 a year to a registered education savings plan for each child and deduct that amount from their income taxes.

It's like a registered retirement savings plan – except it's for children and their education, said Dan McTeague, the Liberal MP for Pickering-Scarborough East who sponsored the bill.

"Most families would be positively affected by this," said McTeague, who admitted he was surprised when the Commons voted 156-122 to pass the bill Wednesday night.

"It is, in fact, the exact same as an RRSP," he said, adding that penalties would apply if the cash were removed for reasons other than post-secondary education.

McTeague is hoping the change would add an extra incentive to save for education and spare students from having to take on crushing debts in order to get through school.

"We have to do a better job of ensuring that oppressive student debt isn't a disincentive and (for) families not able to provide enough income to pay in the face of rising tuitions," he said in an interview.

Under current rules, RESP contributions grow tax-free, but are not tax deductible. Investment earnings are taxed in the hands of the student on withdrawal.

The federal government also matches 20 per cent of contributions to RESPs, up to $7,500. There is a $50,000 lifetime contribution limit.

Canadians currently have $23 billion invested in RESPs. About $500 million was paid out in grants last year to RESP plans.

While McTeague says his bill, now headed to the Senate for approval, will be popular with parents, it's not so popular with the Conservative government, which warned the bill's $900 million price tag could push an already strained federal budget close to deficit.

Ted Menzies, parliamentary secretary to Minister of Finance Jim Flaherty, said it was reckless partisan politics for the Liberals to force McTeague's bill through the House after helping to pass the latest budget.

Most of the surplus projected in the budget could be taken up by making RESPs tax-deductible.

Allowing taxpayers to deduct up to $5,000 of RESP contributions each year, and allowing more than one person to contribute that amount to a child's savings plan could cut federal tax revenues by $900 million a year, and provincial tax revenues by about $450 million, he said.

"Hopefully we can plead some common sense in the Senate committee," he said. "Where we go from there (if the Senate passes the bill), I am not going to comment."

Another official, who didn't want to be named, said the government considers the bill an abuse of the private member process, and will do everything they can to stop it.

Ottawa now provides grants equal to 20 per cent to 40 per cent of RESP contributions, up to $500 per beneficiary per year. Under Bill C22 each $5,000 contribution could save someone in the top tax bracket in Ontario about $2,300.

With files from The Canadian Press

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

Given the govt adds 20% to one' RESP deposit, I don't think the govt will give a tax break also on top of it...

This has been going on for some time now. One might just get a tax break, though I hear 50% being bandied about as an amendment to what has been endorsed to finally settle at 100%.

I.E if you are in the 31.15% bracket and you contribute to an RESP you will get 50% of 31.15% back. Over the years they will increase until we get the full 31.15% tax break.
But some tax break is definitely gonna come out of this. It will not be a total rejection.