INTEGRATED FINANCIAL

PLANNING

CASE II:
TANYA AND LARRY BRAUN
TEAM MEMEBERS

• ALISTAIR CRASTO – N01578754

1 LARRY AND TANYA ARE THINKING ABOUT CONTRIBUTING TO AN RESP
FOR SAMANTHA AND HAVE A FEW QUESTIONS FOR YOU.
A. IF GRETA HAD ALREADY ESTABLISHED A PLAN, CAN THEY OPEN A
NEW PLAN OR CONTINUE TO CONTRIBUTE TO ALREADY ESTABLISHED
PLAN?
• ANSWER 1
• GREATA ALREADY HAS A RESP IN PLACE, TO WHICH SHE CONTRIBUTES $2000 EVERY YEAR.
ACCORDING RESP REGULATIONS, OPEN UNLIMITED RESP ACCOUNTS IN THE NAME OF THE CHILD
• THEREFORE THE PARENTS SHOULD REGISTER A NEW ACCOUNT IN SAMANTHA'S NAME SO THEY
CAN PROFIT FROM THIS ARRANGEMENT.
• ALTHOUGH THERE'S IS NO ANNUAL RESP CONTRIBUTION CAP, THE MINIMUM AMOUNT THEY
SHOULD CONTRIBUTE EACH YEAR IS $2500 IN ORDER TO MAXIMIZE THE POTENTIAL CEGS GRANT.
THIS IS BECAUSE EVERY $2500 DONATED, THE GOVERNMENT WILL MATCH THE 20% OF IT WITH
ADDITIONAL $500 WHICH WILL BE DEPOSITED IN THE SAME ACCOUNT.
• A LIFETIME CONTRIBUTION CAP OF $50,000 PER CHILD IS IN PLACE AS PER THE RULES OF THE
SCHEME
B. CAN THEY DEDUCT THE CONTRIBUTIONS FOR
INCOME TAX PURPOSES?

• FOR TAX PURPOSES, TANYA AND LARRY CANNOT WRITE OFF THE
CONTRIBUTIONS
• THIS HAS A GROWING ELEMENT TO IT THAT MAKES SURE THE MONEY
INVESTED GENERATES INTEREST. IT WONT BE TAXED WHILE IT IS IN RESP
UNTIL THE MONEY IS REMOVED TO PAY FOR THE CHILD'S EDUCATION.
• THE BENEFICIARY OF THIS RESP PROGRAM IS THE ONE WHO IS RESPONSIBLE
FOR PAYING THE TAXES ASSOCIATED WITH ANY WITHDRAWALS FROM RESP
ACCOUNT.
C. WHAT IS THE MAX CESG SAMANTHA THEY
WOULD RECEIVE?

• 3 THINGS MAKE UP A RESP ACCOUNT, CONTRIBUTION GROWTH AND CEGS.

• THE GOVERNMENTS CONTRIBUTION TO THE ACCOUNT IS MATCHED UP TO A CERTAIN
SUM OR CEGS. CEGS IS TYPICALLY 20%, HOWEVER IF THE FAMILY’S NET INCOME
FALLS BELLOW A PARTICULAR AMOUNT, CEGS ADVANTAGE CAN INCREASE TO 40%.
• IN THIS CASE, THE GOVERNMENT WILL ONLY DEPOSIT 20% OF CEGS INTO THE
ACCOUNT BECAUSE THE NET FAMILY INCOME EXCEEDS THE THRESHOLD.
• SAMANTHA WILL BE ELIGIBLE FOR A LIFETIME MAXIMUM OF $7200 IN CEGS.
• THE RESTRICTION HERE IS THAT SAMANTHA WILL BE ELIGIBLE FOR $7200 IF SHE
PURSUES POST SECONDARY EDUCATION,
D. WHAT HAPPENS IF SAMANTHA DOES NOT
PURSUE POST-SECONDARY EDUCATION?

• AN RESP CAN BE OPENED WHEN A CHILD IS BORN , AND IT CAN REMAIN

ACTIVE UNTIL THE END OF THE YEAR THE CHILD REACHES 35.
• AFTER GRADUATING FROM HIGH SCHOOL, THE YOUNGSTERS HAS THE
OPTION OF ENROLLING IN POST SECONDARY EDUCATION OR NOT.
• THE YOUNGSTER CAN CHOOSE TO UTILIZE THIS RESP MONEY FOR A VARIETY
OF FULL TIME OR PART TIME EDUCATIONAL PROGRAMS BETWEEN THE AGES
OF 18 AND 35.
IF GRETA CONTINUES MAKING THE SAME RESP CONTRIBUTION EACH YEAR UNTIL SAMANTHA
STARTSSCHOOL AND LARRY AND TANYA DECIDE NOT TO SAVE ANYTHING FOR SAMANTHA'S
EDUCATION WITHINAN RESP, HOW MUCH WILL BE IN THE RESP BY THE TIME SHE STARTS
SCHOOL, ASSUMING THAT THEINVESTMENTS WITHIN THE PLAN EARN 7.5% BEFORE TAX? THEY
WOULD LIKE TO SEE HOW IT WASCALCULATED.
IF TANYA WANTS TO SELL THE STORE, SHE WILL HAVE TO DISCHARGE HER MORTGAGE
EARLY. INTERESTRATES ON 2-YEAR MORTGAGES ARE 6.75% AND THE BANK WILL
IMPOSE A PENALTY USING THEINTEREST RATE DIFFERENTIAL APPROACH. THIS YEAR,
SHE WILL REDUCE THE PRINCIPAL BY $7,000THROUGH HER REGULAR MORTGAGE
PAYMENTS. WHAT PENALTY WILL TANYA HAVE TO PAY TODISCHARGE THE MORTGAGE
AT THE END OF THIS YEAR?

• SAMANTHA WILL RECEIVE A LUMP SUM PAYMENT WHEN SHE STARTS

SCHOOL AT THE END OF 15 YEARS BECAUSE GREETA PAYS INTO SAMANTHA’S
RESP EACH YEAR.
• BY CALCULATING THE FUTURE VALUE USING THE TIME VALUE OF MONEY
FORMULA, IT IS POSSIBLE TO DETERMINE THE TOTAL AMOUNT OF MONEY
SAVED.
• TIME VALUE OF MONEY IS A CONCEPT THAT STATES THE POTENTIAL FOR
FUTURE EARNINGS, AN AMOUNT OF MONEY IS WORTH MORE NOW THAN IT
WILL BE AT A LATER TIME.
N ( No. of years) 15
I/Y (interest per year) 7.5%
PV (Present Value) 0
PMT ( Amount of regular payments) 2000
FV ( Future Value) 52,236

By com putting FV based on time value of money, Samantha should have $52,236 saved up in her RESP
by the the time she starts school.