As 2012 draws to a close, I am well aware that the last thing on your mind right now is taxes. Hear me out – the first two of these are quick & easy. The last one could mean losing out on $7,200 if you miss the deadline. Hopefully you’ve already dealt with the year-end tax tips I posted back in October. If you haven’t, click here.
Are you planning on enrolling your child in some type of extra-curricular activity that begins in January? Consider registering and paying for it now if you haven’t exceeded your $500 limit for the Children’s Fitness Amount (line 365) or the Children’s Arts Amount (line 370).
Receipts for children’s activities that are eligible for either of these credits are based on when the amounts are paid, not necessarily when the activity takes place. If you don’t use up the full $500, the extra does not carry forward to a future year.
Ok, so this one isn’t really tax-related, but check your allotment for medical benefits from your employer and make sure you’ve used whatever you want to use. Unused amounts don’t usually carry forward to a future year. I did this last week and was pleasantly surprised to discover that I had $100 left in Registered Massage Therapy coverage. Guess where I’m going this week? Ahhh… relaxation! The other thing I discovered was that we hadn’t claimed yet for an appointment that I had back in June. This surprised me because usually I’m pretty eagle-eyed when it comes to stuff like this. I’ll take it this time and make sure to check more carefully in the future. Now, not only am I getting an extra massage, we’re getting $100 that I wasn’t expecting. Not bad for a 5 minute paperwork investment.
RESP contributions (Dec. 31 matters in some circumstances)
Registered Education Savings Plans (RESP’s) allow Canadians to save for future higher education costs. The Canadian government pays a basic Canada Education Savings Grant (CESG) of 20% of annual contributions made to eligible plans, to a maximum of $500 per beneficiary per year ($1,000 CESG if there is unused grant room from a prior year). The lifetime CESG maximum is $7,200. There may be additional grants available depending on your family income level. See CRA’s website for details on these.
There are some who do not think that RESP’s are the most effective way to save for your child’s education. I’ll save that discussion for another post. For now, if you have one or think you should have one, here is what you need to keep in mind before December 31st.
If you have a 15 year old child
This deadline is critical for you. In order to be eligible for any CESG grant at all, you need to set up an RESP and contribute at least $2,000 before December 31, 2012. So, if you think an RESP is a good idea and just haven’t gotten around to it yet, take the phone that you’re reading this on and call your bank or financial advisor right now. Because RESP’s are designed for long term savings for future education, you can’t just dump all the money in right before your child goes to University or College and expect to get the grant – it won’t work.
If your child is 15 and you have an RESP already, click here and read the conditions under “Contribution requirements for beneficiaries who are 16 or 17 years old” and make sure you meet them by the end of the year. Otherwise, you too could be without opportunity to collect on the CESG.
If your children are younger than 15 years old
If you’ve been maximizing your CESG already by making annual contributions, then you can miss 2012 and catch up in 2013 without a large impact. In this case, the end of the year approaching does not make that much difference.
However, if you are looking to catch up on contributions not made in prior years (and thus have unused CESG room), you’re better off doing the catching up in $5,000 annual increments. If you contribute $5,000 in 2012 and $5,000 in 2013, you should receive $1,000 in CESG in 2012 and $1,000 in CESG in 2013. However, if you contribute $10,000 on January 1, 2013, your CESG will only be $1,000. In this case, the December 31 deadline does make a difference.
Lastly, given that the maximum grant you can receive in one year is $1,000 (if you have unused room from a prior year), and the lifetime limit for the grant is $7,200, then contributions will need to be made over at least 8 years in order to maximize the grant. This should be kept in mind when deciding on whether to open an RESP now or wait until a future year.
That’s it for today… back to Christmas preparations!