RESP tax break is a wise choice

Tuesday, April 7th, 2009

March 12, 2008 Ed Cartoon

The Canadian House of Commons passed a bill aimed at restructuring Registered Education Savings Plans to make way for tax-free savings funds up to $5,000.

This strategy should work well for the next generation in aiding students and parents to save money without taking a tax hit. While many students do not earn enough to pay significant taxes, anybody saving enough to pay for a postsecondary education will save a large chunk of money under this plan. This could be what enables some Canadian students to afford school.

Furthermore, the plan seems aimed at solving problems for the middle-income students, who cannot afford to pay for university on their own, but are also ineligible for many student loans.

The Conservatives have alleged, however, that the plan will unreasonably eat up Canada’s budget surplus, making it financially unfeasible.

Many might be upset with tax hikes or drops in other services to pay for the tax-free loans, but it should be noted that frustrated older citizens will eventually benefit from students coming out of university to fuel the economy once the baby-boomers are fully retired.

There are a number of other benefits to the program.

These savings funds will increasingly reward families who invest as much as possible and, as such, should serve as a catalyst for families starting earlier and investing in their children’s futures; this should avoid a number of students in need of funding down the road.

One concern is this plan could be perceived as more beneficial to higher-income Canadian families, since tax rebates generally give more relief to those in a high-tax bracket. Also, higher-income families are more likely to have the $5,000 at hand to invest.

However, it is important to note that the $5,000 is a maximum limit, not a minimum. This enables lower-income families to invest in education, although they might not necessarily maximize the fund. Even if families can throw in $500-1,000, it’s an improvement.

One might argue the government revenue used to fund the tax break could be better used to directly fund students. Why go a roundabout way when we can simply help students currently in need?

This plan fails to solve the underlying issues behind students’ financial difficulties, though, and there’s no guarantee that money will actually reach students rather than be absorbed by the university.

Thus, direct funding is an easy way out for the government. The proposal to provide tax-free RESPs is therefore an effective way to curb the problem of financial difficulties with postsecondary education.

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