Knowledge First Financial Product Knowledge Course

Transcription

1 Knowledge First Financial Product Knowledge Course Flex First Plan Family Group Plan Family Single Student Plan (September 2015)

2 Glossary We, our and us: Knowledge First Foundation and Knowledge First Financial. 1 Subscriber: Client, customer, the person or persons, who enter into a plan with us. Beneficiary: The person, child/student the subscriber selects to benefit from Education Savings Plan. Primary caregiver: The person who is primarily responsible for the care and upbringing of the beneficiary. ESP: A non-registered Education Savings Plan. RESP: Registered Education Savings Plan, the product the subscriber is contributing to. Plan(s), the plan(s): The Flex First Plan, the Family Group Plan, the Family Single Student Plan Unit: In respect of the Family Plans, is used to calculate the sales charge of $100 per unit. Canadian resident: Official status and requirement to enroll in an RESP, read about how the government determines Canadian residency for tax purposes at Education assistance agreement: The contract between the subscriber and the Foundation for the Flex First Plan, the Family Group Plan or the Family Single Student Plan, which the subscriber has enrolled in. Non-registered holding account: Holds the net contributions the subscriber makes into a plan, and any income earned on contributions before we receive a valid Social Insurance Number for the beneficiary. Savings account: Holds the net contributions the subscriber makes into a plan and government grants the subscriber has received, plus any income they earn, after we ve received a valid Social Insurance Number for the beneficiary. Application date: The day the subscriber signs the application for enrolment in the Knowledge First Financial Education Savings Plan. Once we ve approved and processed the application, the day the subscriber signed the application is also considered to be the day the subscriber has entered into an education assistance agreement with us, and the day the subscriber officially opened the plan. Contributions or gross contributions: The amount of money the subscriber puts into the plan. This is the amount used to calculate the Canada Education Savings Grant, the Quebec Education Savings Incentive and the Saskatchewan Advantage Grant for Education Savings Net contributions: The total contributions made by the subscriber into the plan, less the sales charge deductions, depository fees, insurance premiums (if applicable), any contribution withdrawals he or she has made, and any special service fees (if applicable). 1 Knowledge First Financial is a registered name of Knowledge First Financial Inc.

3 Cancelled Plan: An ESP that is deactivated within 18 months of enrolment or an RESP that is deactivated within 60 days of enrolment. A cancelled plan cannot be reactivated. Cancelled Plan by Request: An ESP that is deactivated as a result of a subscriber s request to withdraw their funds. Cancelled Plan by Default: An ESP that is deactivated by Knowledge First Financial as a result of a missing beneficiary s SIN or as a result of outstanding deposits on the plan. Closed Plan: A former RESP that was de-registered and cannot be reactivated. Otherwise defined as terminated. Discontinued Plan: A group plan that is deactivated more than 60 days after it is opened. A discontinued group plan can be reactivated within 2 years of being discontinued or before the student s 14 th birthday, whichever comes first. Discontinued by Request: A group plan that is deactivated as a result of a subscriber s request to withdraw their funds. Discontinued by Default: A RESP that is deactivated by Knowledge First Financial Transfer Out: A transfer of funds from a subscriber s RESP to another RESP. The RESP is closed once the transfer is completed. Maturity Date: July 31 in the Year of Maturity. Year of Maturity: The year chosen by the subscriber at the time of application; usually the year in which the student is expected to enter the first academic year of a post-secondary program. Education Assistance Payment: As defined in the Income Tax Act, an amount other than a refund of deposits, paid out of a plan to a student to further the student s education at a post-secondary school level. 2

4 Contents Organization and Management of the Plans... 9 Who is the Knowledge First Foundation?... 9 Who is Knowledge First Financial?... 9 Who is the Depository for the Plans?... 9 Who is the Trustee of the Plans?... 9 What do the Portfolio Advisors do? Government Grants Canada Education Savings Grant (CESG) How Does the CESG Work? Canada Education Savings Grant Eligibility Criteria Carry forward of Canada Education Savings Grant Canada Learning Bond (CLB) Canada Learning Bond Eligibility Criteria Canada Learning Bond Amount Rules Surrounding the RESP that Receives the Canada Learning Bond Quebec Education Savings Incentive (QESI) Additional Quebec Education Savings Incentive Carry forward of Quebec Education Savings Incentive Quebec Education Savings Incentive Eligibility Criteria Saskatchewan Advantage Grant for Education Savings (SAGES) How Does the Grant Work? Saskatchewan Advantage Grant for Education Savings Eligibility Criteria British Columbia Training and Education Savings Grant (BCTESG) British Columbia Training and Education Savings Grant Eligibility Criteria Flex First Plan What Sets the Flex First Plan Apart from Other RESPs One Active Plan Risk Factors Subscribers Who Can Be a Subscriber? Is It Possible to Change a Subscriber? Beneficiary Who can be a Beneficiary? What if the Beneficiary does not have a Social Insurance Number? How are Contributions Handled for Non-Registered Plans?

5 Is it Possible to Change a Beneficiary? How are Previous Contributions Handled if the Beneficiary is Changed? How are Previous Grants Handled if the Beneficiary is Changed? Total Contribution Goal What is the Minimum Total Contribution Goal? What is the Maximum Total Contribution Goal? Contributions About Contributions How are Contributions Made? What are the Minimum Contribution Limits? What are the Implications of Exceeding the $50,000 Contribution Limit? What are the Tax Consequences for Excessive Contributions? Are Pre-Authorized Deposits Available? Can the Subscriber make Lump Sum Contributions? Can the Subscriber Increase the Total Contribution Goal? Can the Subscriber Reduce the Total Contribution Goal? Can the Subscriber Change the Contribution Amount and Frequency? Can the Subscriber Open a Plan Without Making Contributions? Can the Subscriber Start Contributing to a Grant Only Plan? Are there Contractual Requirements When Changing the Total Contribution Goal? Total Contribution Goal - Auto Reduction Feature What is the Auto TCG Reduction Feature? How is the Revised Total Contribution Goal Calculated? Loyalty Bonus Program How does the Loyalty Bonus Program Work? Advantage of Early Contributions Eligibility Requirements for Loyalty Bonus What is the Criteria to Receive the Loyalty Bonus Payout? Discretionary Foundation Scholarship Payments (Foundation Top-ups) Plan Transfers Transferring Funds from another RESP Promoter to Flex First Plan Implications to the Total Contribution Goal Plan Transfers from Flex First to another RESP Promoter Transferring Funds from a Family Plan to a Flex First Plan Transferring Funds from the Flex First Plan to a Family Plan Withdrawing Contributions Non-Post-secondary Education Contribution Withdrawals Post-Secondary Education Contribution Withdrawals Full and Partial Post-Secondary Education Withdrawals and Education Assistance Payments

6 Re-depositing Contribution Withdrawals Education Assistance Payments Receiving Education Assistance Payments What makes up an Education Assistance Payment? Eligible Studies - Institutions and Programs What are Eligible Post-Secondary Education Institutions? What is an Eligible Post-Secondary Education Program? When the Beneficiary Does Not Pursue Post-secondary Studies Investment Strategy Fees and Expenses Sales Charge Special Processing Fees Management Fee Independent Review Committee Fee Accounts Holding Account Savings Account Grant account Sales Charge Refund Feature When Closing or Transferring a Plan to another RESP Promoter When Reducing the Total Contribution Goal Eligibility for a Sales Charge Refund Canceling a Plan What happens when a plan is cancelled? What happens when a non-registered plan is cancelled? What happens to the income earned when a registered plan is cancelled? Day Free Look Period Minimum Plan Value after 3 years Can a Cancelled Plan be Re-opened? Addendum I Automatic Total Contribution Goal Reduction Feature Examples Example Scenario A: Scenario B: Scenario C: Scenario D: Example Scenario A: Scenario C: Addendum II - Calculating Sales charge Refunds

7 Example: Sales Charge Refund for Closed Plan or Transferred Out Example: Sales Charge Refund for Reduced Total Contribution Goal Scenario A Scenario B Addendum III Loyalty Bonus Illustrations Subscriber Subscriber Subscriber Subscriber Family Group Plan What Sets the Group Plan Apart Pooled Income The Unit Concept Set Contribution Schedule Education Assistance Payments Who Should Enrol in the Group Plan Advantages & Disadvantages Benefits of the Group Plan Disadvantages of the Group Plan Risk Factors Subscribers Who Can Be a Subscriber? Is It Possible to Change a Subscriber? Beneficiary Who can be a Beneficiary? What if the Beneficiary does not have a Social Insurance Number? How are Contributions Handled for Non-Registered Plans? Is it Possible to Change a Beneficiary? How are Previous Contributions Handled if the Beneficiary is Changed? How are Previous Grants Handled if the Beneficiary is Changed? What Happens if the Beneficiary is Disabled or Dies? Contributions About Contributions What are the Minimum Contribution Limits? What are the Maximum Contribution Limits? What are the Implications of Exceeding the $50,000 Contribution Limit? What are the Tax Consequences for Excessive Contributions? How are Contributions Made? Can the Subscriber Change the Contribution Amount and Frequency?

8 What happens if a Subscriber Misses a Scheduled Contribution? Can the Subscriber Stop Making Contributions? Options for Missed Deposits Can the Subscriber Open a Group Plan Without Making Contributions? Group Plan Contribution Schedule Plan Transfers Transferring Funds from another RESP Promoter to the Group Plan Plan Transfers from the Group Plan to another RESP Promoter Plan Transfers from a Single Student Plan or Flex First Plan to a Group Plan Plan Transfers from a Group Plan to a Single Student Plan or Flex First Plan Impact on Government Grants of a Beneficiary Change During a Plan Transfer Withdrawing Contributions Non-Post-secondary Education Contribution Withdrawals Can the subscriber withdraw his or her contributions for non-post-secondary education purposes before plan maturity? Post-Secondary Education Contribution Withdrawals Can a subscriber request to withdraw his or her post-secondary education contribution before the scheduled maturity date? Can a subscriber request to withdraw his or her post-secondary education contribution after the scheduled maturity date? Un-cashed cheques Education Assistance Payments What are the Conditions to Receive Education Assistance Payments? How are EAPs Paid and Taxed? What makes up an Education Assistance Payment? How are Education Assistance Payments Calculated? Calculating the grant part of an EAP Calculating total education assistance payment Will a beneficiary receive an education assistance payment if he or she repeats an academic year? 107 Will a beneficiary lose his or her education assistance payment if he or she takes a year off? Discretionary Foundation Payments to Students (Foundation Top-ups) Eligible Studies - Institutions and Programs What are Eligible Post-Secondary Education Institutions? What is an Eligible Post-Secondary Education Program? When the Beneficiary Does Not Pursue Post-secondary Studies Investment Strategy Fees and Expenses Sales Charge Insurance Premiums

9 Depository fees Special Processing Fees Management Fee Independent Review Committee (IRC) fee Accounts Holding Account Savings Account Grant account Foundation education assistance payment (FEAP) accounts Income account Discontinuing a Group Plan What Happens once a Group Plan is discontinued? Cancelling a Plan Day Free Look Period What happens when a non-registered plan is cancelled? What happens when a registered plan is closed? What happens to the income earned on the plan? Can a cancelled plan be Re-opened? Addendum I Calculating Units Addendum II - Increasing Contributions Addendum II Reducing Contributions Addendum III Reactivating Discontinued Units Addendum IV Insurance Inclusions and Exclusions Addendum V - Sales charge Deductions Family Single Student Plan Family Single Student Plan Overview Risk Factors Subscribers Who Can Be a Subscriber? Is It Possible to Change a Subscriber? Beneficiary Who can be a Beneficiary? What if the Beneficiary does not have a Social Insurance Number? How are Contributions Handled for Non-Registered Plans? Is it Possible to Change a Beneficiary? How are Previous Contributions Handled if the Beneficiary is Changed? How are Previous Grants Handled if the Beneficiary is Changed? Contributions About Contributions

10 What are the Minimum Contribution Limits? What are the Maximum Contribution Limits? What are the Implications of Exceeding the $50,000 Contribution Limit? What are the Tax Consequences for Excessive Contributions? How are Contributions Made? Contribution Schedules for the Single Student Plan Are Pre-Authorized Deposits Available? Can the Subscriber Change the Contribution Amount and Frequency? Can the Subscriber Open a Plan Without Making Contributions? Can the Subscriber miss a scheduled contribution or stop contributing temporarily? What happens if a Subscriber dies or becomes totally disabled? Plan Transfers Transferring Funds from another RESP Promoter to the Single Student Plan Plan Transfers to another RESP Promoter from the Single Student Plan Transferring Funds to a Single Student Plan from a Group Plan or a Flex First Plan Transferring Funds from a Single Student Plan to a Group Plan or Flex First Plan Withdrawing Contributions Non-Post-secondary Education Contribution Withdrawals Post-Secondary Education Contribution Withdrawals Education Assistance Payments Receiving Education Assistance Payments What makes up an Education Assistance Payment? Eligible Studies - Institutions and Programs What are Eligible Post-Secondary Education Institutions? What is an Eligible Post-Secondary Education Program? What happens to income that is not paid out as part of an education assistance payment? When the Beneficiary Does Not Pursue Post-secondary Studies Investment Strategy Fees and Expenses Sales Charge Is an Additional Sales Charge Required when Increasing the Contribution Amount? Insurance Premiums Depository fees Special Processing Fees Management Fee Independent Review Committee (IRC) fee Accounts Canceling a Plan What happens when a plan is cancelled?

11 What happens when a non-registered plan is cancelled? What happens to the income earned when a registered plan is cancelled? Day Free Look Period Minimum Plan Value after 3 years Can a Cancelled Plan be Re-opened?

12 Organization and Management of the Plans Who is the Knowledge First Foundation? The Knowledge First Foundation (known as the International Scholarship Foundation until September of 2011) was founded in The Foundation is the sponsor and promoter of the Education Savings Plans offered by Knowledge First Financial and has responsibility for the Plans including overseeing the investment of all Plan assets. The Foundation s mission is to encourage and assist Canadians in obtaining a post-secondary education by providing peace of mind savings solutions. We offer families an affordable, disciplined way to save, individually or by pooling their money. The Foundation is a not-for-profit corporation and it has no shareholders. The Foundation is therefore in a position to share its available excess revenue with students in the group plan and the Flex First Plan by supplementing their EAPs. These payments are called Discretionary Foundation Scholarship Payments (also known as Foundation top- ups ). The beneficiary must attend a qualifying post-secondary education program, and receive an education assistance payment to qualify to receive the Foundation top-up. Who is Knowledge First Financial? Knowledge First Financial is registered as a Scholarship Plan Dealer (the Dealer ) and an Investment Fund Manager (the IFM ). The Dealer sponsors the licenses of the Sales Representatives who distribute the Plans on the Dealer s behalf. The Dealer is responsible for planning and performing all of the marketing and sales functions in respect of the Plans offered by Knowledge First Financial. It receives specific fees in return for these services. As the Investment Fund Manager of the Plans, Knowledge First Financial must ensure investments conform to applicable Securities Act, National Policies/Instruments as well as Canadian Securities Administrators guidelines and must meet Canada Revenue Agency requirements. The administration function falls under the Investment Fund Manager responsibilities and includes: Customer service and agreement maintenance Finance and accounting Record keeping throughout the lifetime of the Plans Who is the Depository for the Plans? RBC Royal Bank serves as depository and is responsible for collecting subscriber funds (primarily through pre-approved deposits from subscriber bank accounts), then transferring them to the trustee. Who is the Trustee of the Plans? RBC Investor Services Trust serves two roles. As custodian, they hold the investments in safekeeping. As trustee, they oversee the process of maintaining and administering the subscriber savings accounts and ensure payments are made to subscribers and beneficiaries in accordance with the terms of the 9

13 Education Assistance Agreement and prospectus. If the Foundation or Knowledge First Financial were to cease operating, current plans would continue to be administered by the Trustee. What do the Portfolio Advisors do? The Knowledge First Foundation employs the services of Portfolio Advisors who are responsible for making investments on its behalf, subject to the policies and parameters established by the Foundation and the Canadian Securities Administrators. A list of the current portfolio advisors can be found in the prospectus. 10

14 Government Grants Canada Education Savings Grant (CESG) In January 1998 the federal government introduced the Canada Education Savings Grant for contributions made to an RESP. How Does the CESG Work? The Canada Education Savings Grant is equal to 20% of the first $2,500 of annual contributions made to a beneficiary s RESP. In 2005, the program was enhanced with an additional grant, called the Additional Canada Education Savings Grant (ACESG). The ACESG offers an additional 10% or 20% of the first $500 of annual contributions and is based on the net family income of the beneficiary s primary caregiver. The eligible annual net family income is indexed and updated each year. The net family income is used to determine eligibility for the Canada Child Tax Benefit (CCTB). To find out net family income, primary caregivers can consult their: o o o o o Canada Child Tax Benefit Notice of Determination. Goods and Services tax Credit / Harmonized Sales Tax Credit (GSTC/HSTC) notice of Determination. Notice of assessment or reassessment (if married or have a common-law partner add the two Net Incomes - Line 236). Family income is the amount declared in the last income tax return, i.e. the amount for the previous year. My Account available on the Canada Revenue Agency Web site at Primary caregivers can also call the Canada Revenue Agency to confirm their net income: Annual maximum total Canada Education Savings Grant (basic and additional CESG) is $500, $550 or $600 per beneficiary according to the family income. Cumulative lifetime limit (including the basic and additional Canada Education Savings Grant) is $7,200 per beneficiary. The maximum annual amount can reach $1,000 per beneficiary when there are unused basic Canada Education Savings Grant carry forward rights; and up to $1,100 if the family also qualifies for the full Additional CESG in that year. The amounts received as a Canada Education Savings Grant accumulate in a tax shelter. CESG and ACESG are paid out to the beneficiary as part of their education assistance payments during their post-secondary studies. Canada Education Savings Grant amounts are not considered contributions in the calculation of the total contribution limit ($50,000) per beneficiary. 11

15 Canada Education Savings Grant Eligibility Criteria The beneficiary must have a Social Insurance Number and be a Canadian resident for the plan to benefit from the Canada Education Savings Grant. The Canada Education Savings Grant is paid directly into the beneficiary s RESP. We apply to the government for the Canada Education Savings Grant on behalf of the subscriber, once we receive a copy of the duly completed form prescribed by the government. The Canada Education Savings Grant is available for beneficiaries up until the end of the calendar year in which they turn 17 years old. Beneficiaries aged 16 or 17 years are only eligible to receive the Canada Education Savings Grant if one of the following two criteria is met: At least $2,000 was contributed to a plan, and not withdrawn, before the year the beneficiary turned 16, or At least $100 a year was contributed to a plan, and not withdrawn, in any four years before the year the beneficiary turned 16. Carry forward of Canada Education Savings Grant The Canada Education Savings Grant rights are cumulative and can be carried forward, starting from January 1, 1998, or from the beneficiary s date of birth, whichever is more recent. If no contributions are made to an RESP in a given year, or if the contributions are not sufficient to provide the maximum Canada Education Savings Grant payable in a given year, any unused Canada Education Savings Grant entitlement can be collected in subsequent years, for as long as the beneficiary is eligible. The basic Canada Education Savings Grant amounts received each calendar year (including the carry forward) cannot exceed $1,000. Period Basic CESG annual rights Minimum contributions required for annual basic CESG rights Annual ceiling for basic CESG Minimum contributions required to hit annual ceiling for basic CESG rights 1998 to 2006 $400 $2,000 $800 $4, to present $500 $2,500 $1,000 $5,000 Example A: The subscriber enrolled Mandy in an RESP 2002, the year she turned 8. In 2005, the net family income was $95,000. Grant rights have been accumulating since the more recent of the following two dates:

16 Beneficiary s birth year Since Mandy was born before 1998, her grant rights have been accumulating since This table presents the contributions made to date in beneficiary s RESP, as well as the status of the grants: Years giving right to a grant Grant rights Contributions Basic CESGs paid Unused CESG rights balance 1998 $400 $ $400 $ $400 $1, $400 $1,600 (1) 2002 $400 $2,000 $400 $1,600 (2) 2003 $400 $1,000 $200 $1, $400 $0 $0 $2, $400 $4,000 $800 (3) $1, $400 $3,000 $600 $1, $500 $6,000 $1,000 (4) $1,100 (5) Note: Given the subscriber s family income, Mandy is not eligible for the additional Canada Education Savings Grant. 1 Balance of unused Canada Education Savings Grant rights at the end of 2001 Grants for 1998, 1999, 2000 and 2001 $400 + $400 + $400 + $400 = $1,600 2 Balance of unused Canada Education Savings Grant rights at the end of 2002 Balance at end of 2001 $1,600 + CESG rights for 2002 $400 - Grant paid in 2002 ($400) Unused rights at the end of 2002 $1,600 3 Prior to 2007, the basic maximum annual Canada Education Savings Grant was $800 Current year grant: Maximum $400 Unused rights: Maximum $400 13

17 4 Since 2007 inclusively, the maximum annual basic Canada Education Savings Grant is $1,000 Current year grant: Maximum $500 Unused rights: Maximum $500 5 Balance of unused Canada Education Savings Grant rights at the end of 2007 Balance at end of 2006 $1,600 + CESG rights for 2007 $500 - Grant paid in 2007 ($1,000) Unused rights at the end of 2007 $1,100 Example B: Let s take another look at a case for the same beneficiary (Mandy), but based on the assumption that her family s net income was $30,000 in 2005, $33,000 in 2006 and $45,000 in Years giving right to a grant Grant rights Contributions Basic CESGs paid Supplementary CESGs received Unused CESG rights balance 1998 $400 $ $400 $ $400 $1, $400 $1, $400 $2,000 $400 N/A (1) $1, $400 $1,000 $200 N/A (1) $1, $400 $0 $0 N/A (1) $2, $400 $4,000 $800 $100 $1,800 (2) 2006 $400 $3,000 $600 $100 $1, $500 $6,000 $1,000 $50 (3) $1,100 Canada Learning Bond (CLB) The Canada Learning Bond is a grant offered by the government of Canada to help low income families begin saving early for their child s post-secondary studies. We apply to the federal government for the 14

18 grant on behalf of the subscriber. The Canada Learning Bond is paid directly into the RESP of the child who is named beneficiary. Canada Learning Bond Eligibility Criteria To be eligible, a beneficiary must meet the following requirements: Be born after December 31, 2003; Be a resident of Canada; Have a valid Social Insurance Number; and: The primary caregiver of the beneficiary must be entitled to and receive the National Child Benefit Supplement or payments under the Children s Special Allowances Act, which is paid from the Canada Child Tax Benefit (commonly called family allowance ). Subscribers can read about the NCB Supplement at nationalchildbenefit.ca. Canada Learning Bond Amount The cumulative total Canada Learning Bond offered to a child can reach $2,000. It consists of and initial grant of $500 and $100 in each year of eligibility until the child reaches age 15. Canada Learning Bond is paid out to the beneficiary as part of their education assistance payments during their post-secondary studies. CLB grant amounts are not considered contributions in the calculation of the total contribution limit of $50,000 per beneficiary. Rules Surrounding the RESP that Receives the Canada Learning Bond One RESP at a time can be designated for the Canada Learning Bond. The primary caregiver must designate the RESP in which the Canada Learning Bond will be paid. The subscriber does not have to be the primary caregiver. RESP contributions are not required to receive the Canada Learning Bond. The government of Canada provides the Canada Learning Bond even if no contributions were made to the RESP. QESI grant amounts are not considered contributions in the calculation of the total contribution limit of $50,000 per beneficiary. 15

19 Age Restrictions in Applying for the Canada Learning Bond From birth to age 18 years: The RESP can be opened by the subscriber (the person in charge having designated the plan). If the person in charge of the child is late in applying for the Canada Learning Bond, the government of Canada will still make the payments for prior eligible years. From age 18 to 21 years: A person can open an RESP in his or her own name and apply for the Canada Learning Bond for all years in which he or she was eligible. In this case, the subscriber is also the beneficiary. However, the beneficiary must be born after December 31, 2003 to be eligible for the Canada Learning Bond. As of beneficiary s 21 st birthday: If no application was made up to the beneficiary s 21st birthday, his or her right to the Canada Learning Bond is withdrawn. If the beneficiary does not pursue post-secondary studies, the Canada Learning Bond must be reimbursed to the government of Canada. The Canada Learning Bond Cannot Be Used by Another Child The Canada Learning Bond is reserved exclusively for a specific beneficiary and must be repaid if the beneficiary is changed. The Canada Learning Bond can be transferred to another RESP as long as the new plan has the same beneficiary. Quebec Education Savings Incentive (QESI) In its 2007 budget, the Quebec government announced the implementation of the Quebec Education Savings Incentive, which aims to improve access to post-secondary studies for Quebec youth. This program consists of a refundable tax credit paid by Revenue Québec to the RESP promoter on behalf of the beneficiary. The start date of the program was February 21, As a result, all RESP contributions made after February 20, 2007, are eligible for the tax credit if the beneficiary meets the eligibility requirements described later. The QESI program is modeled after the CESG grant program and is equal to 10% of the first $2,500 of annual contributions made to a beneficiary s RESP Quebec Education Savings Incentive is paid out to the beneficiary as part of their education assistance payments during their post-secondary studies. The annual basic QESI tax credit is 10% of the first $2,500 (or less) of contributions paid during the calendar year (for 2007, contributions paid after February 20). Additional Quebec Education Savings Incentive The AQESI offers an additional 5% or 10% of the first $500 of annual contributions and is based on the net family income of the beneficiary s primary caregiver. The eligible annual net family income is indexed and updated each year. Family income is the income of two spouses, members of the family unit, according to the terms of the Refundable Tax Credit for Child Assistance (RTCCA). A family may refer to line 275 of its last Quebec 16

20 income tax return (TP1) for both parents, in order to know its net family income. The family income is that of the last income tax return, consequently, that of the preceding year. The eligible annual income is revised each year according to the inflation rate. Annual QESI maximum is $250, $275 or $300 per beneficiary, according to family income The maximum annual amount may reach up to $500 per beneficiary when there are unused carry forward rights, and up to $550 if, in addition, the family qualifies for the additional 10% AQESI. Cumulative QESI limit is $3,600 per beneficiary, including any Additional Quebec Education Savings Incentive. Carry forward of Quebec Education Savings Incentive Calculating Accrued Credits ($250 x A) - B A = B = The number of years included between January 1, 2007 or the year in which the beneficiary was born (whichever is more recent) and December 31 of the year in which the Quebec Education Savings Incentive is requested. All Quebec Education Savings Incentive amounts granted for the previous years, without taking any additional Quebec Education Savings Incentive into consideration. Example The beneficiary was born in In 2011, his or her parents open an RESP, they wonder what the Quebec Education Savings Incentive tax credit will be, given different contribution scenarios. The subscriber s family income for 2010 is $65,000. The table below presents three possible contribution scenarios for Years entitling right to the tax credit Entitlement to the tax credit Contributions Base Tax Credit Paid Additional QESI Total Tax Credit Paid 2007 $250 $0 N/A N/A N/A 2008 $250 $0 N/A N/A N/A 2009 $250 $0 N/A N/A N/A 2010 $250 $0 N/A N/A N/A $1,500 $150 $25 $ $250 $2,500 $250 $25 $275 17

21 $7,000 $500 $25 $525 Balance of rights accumulated for the year 2011: ($250 x A) B ($250 x 5 years) $0 = $1,250 If the beneficiary s parent contributes $7,000 in 2015, he or she will have the right to a maximum annual tax credit of $500, as a result of his or her accumulated carry forward rights. In addition, because of his or her income level, the subscriber will have the right to a $25 increase (5% on first $500 of annual contribution), resulting in a total tax credit of $525, which will be paid into beneficiary s RESP in Rights to any Additional Quebec Education Savings Incentive are non-cumulative. For example, if no contribution was made in 2015, the right to an AQESI increase may not be deferred to another year. It would be forfeited. Quebec Education Savings Incentive Eligibility Criteria The beneficiary must have a Social Insurance Number and reside in Quebec at the end of the year in which the contribution was made. In the year the beneficiary turns 16 or 17 years old, the Quebec Education Savings Incentive will only be paid to the plan if: at least $2,000 was contributed to a plan, and not withdrawn, before the year the beneficiary turned 16, or at least $100 a year was contributed to a plan, and not withdrawn, in any four years before the year the beneficiary turned 16. Beneficiary must reside in Quebec to receive the collected QESI grant included with their education assistance payment. Only RESP providers and trustees with a place of business in Quebec can apply for Quebec Education Savings Incentive. 18

22 Saskatchewan Advantage Grant for Education Savings (SAGES) The government of Saskatchewan introduced the Saskatchewan Advantage Grant for Education Savings in 2013 for contributions made to an RESP. How Does the Grant Work? The Saskatchewan Advantage Grant for Education Savings is modeled after the CESG grant program and is equal to 10% of the first $2,500 of annual contributions made to a beneficiary s RESP. Annual maximum total SAGES is $250 per beneficiary Cumulative lifetime limit is $4,500 per beneficiary Unused Saskatchewan Advantage Grant for Education Savings entitlement can be carried forward for use in future years. If no contributions are made to an RESP in a given year, or if the contributions are not sufficient to provide the maximum SAGES payable in a given year, any unused SAGES entitlement can be collected in subsequent years, for as long as the beneficiary is eligible. SAGES is paid out to the beneficiary as part of their education assistance payments during their post-secondary studies. SAGES grant amounts are not considered contributions in the calculation of the total contribution limit of $50,000 per beneficiary. Saskatchewan Advantage Grant for Education Savings Eligibility Criteria The beneficiary must have a Social Insurance Number and be a resident of Saskatchewan for the plan to benefit from the Saskatchewan Advantage Grant for Education Savings. The Saskatchewan Advantage Grant for Education Savings is paid directly into the beneficiary s RESP. We apply to the government for the grant on behalf of the subscriber, once we receive a copy of the duly completed form prescribed by the government. The Saskatchewan Advantage Grant for Education Savings is available for beneficiaries up until the end of the calendar year in which they turn 17 years old. Beneficiaries aged 16 or 17 years are only eligible to receive this grant if one of the following two criteria is met: At least $2,000 was contributed to a plan, and not withdrawn, before the year the beneficiary turned 16, or At least $100 a year was contributed to a plan, and not withdrawn, in any four years before the year the beneficiary turned

23 British Columbia Training and Education Savings Grant (BCTESG) The British Columbia Training and Education Savings Grant was introduced by the Government of B.C. to encourage families to save for their children s post-secondary studies. Eligible recipients will receive a one-time grant of $1,200 in the year they turn six (6) years old. British Columbia Training and Education Savings Grant Eligibility Criteria The child must be born after 2006 and be a resident of B.C. A parent or guardian must be a B.C. resident when the application is made The BCTESG is paid out to the beneficiary as part of their education assistance payments during their post-secondary studies If the BCTESG cannot be paid as education assistance payments, they must be reimbursed to the Government of B.C. BCTESG amount is not considered an RESP contribution when calculating the total RESP contribution limit of $50,000 per beneficiary. Information regarding BCTESG application rules: Application for the grant must be processed within 3 years following the beneficiary s sixth birthday (before their ninth birthday) BCTESG will be retroactive to 2013 for eligible children. BCTES Grant Application Period for Eligible Children Birth Year 1 st day of eligibility 1 st day to apply Last day to apply child s 6 th birthday in 2013 child s 6 th birthday in 2014 child s 6 th birthday in 2015 August 15, 2015 August 14, 2018 August 15, 2015 August 14, 2018 August 15, 2015 or the day the child turns 6 (whichever is later) August 14, 2018 or the day before the child turns 9 in 2018 (whichever is later) 2010 or later Day the child turns 6 Day before the child turns 9 20

24 Flex First Plan What Sets the Flex First Plan Apart from Other RESPs When opening a Flex First plan RESP the subscriber will establish what is called the Total Contribution Goal (TCG). In other words, the total amount of contributions the subscriber wants to make into his or her plan before the beneficiary attends a post-secondary educational program. The subscriber can make ongoing contributions and/or lump sum contributions at any time. The subscriber can set a total contribution goal based on a dollar value, the percentage of education costs he or she plans to cover, or based on a sum derived from expected ongoing or lump sum contributions. The following key features set the Flex First plan apart from other RESPs: The Loyalty Bonus A monthly bonus that can accumulate on behalf of every qualified plan. The Sales charge Refund Provision A portion of the sales charge that has been paid into a plan can be returned to the subscriber s plan if the plan is closed, transferred to another RESP promoter or if the subscriber requests to reduce the plan s total contribution goal, under certain conditions. Discretionary Foundation Top-up - As a not-for-profit corporation, the Knowledge First Foundation has no shareholders and is able to share available excess revenue with beneficiaries in the Flex First plan. This is achieved by supplementing, or topping up, the beneficiary s education assistance payments. The Flex First plan is eligible for this Foundation education assistance payment top-up. 21

25 One Active Plan The flexibility of the Flex First Plan is that one plan will satisfy the needs of the majority of our subscribers, reducing the need for subscribers to open multiple plans. In situations where one plan cannot accommodate the needs of the subscriber a second plan can be opened. For example if the subscriber wants to contribute on a regular monthly and on a regular biweekly basis a second plan will need to be opened. The following diagram illustrates the flexible nature of the Flex First plan. Grandma`s Christmas contributions of $200 towards Alexander s RESP each year ( ) Bi-weekly contributions of $30 ( ) $3,600 Alexander`s Knowledge First RESP $3,900 Change to monthly contributions of $250 ( ) $24,000 Total Contributions = $40,000 $5,000 $3,500 Change to annual contributions of $700 ( ) One time contributions from bonus of $2,500 in 2012 and $2,500 in

26 Risk Factors The following are risk factors to be considered before investing in the Flex First Plan: If the Social Insurance Number for the beneficiary is not provided within 18 months of the day the plan was opened, we will cancel the plan. If for any reason the Canada Revenue Agency cannot validate the beneficiary s Social Insurance Number, we cannot register the plan as an RESP and will have to cancel the plan. If the plan is cancelled after the 60th day from when it was opened, the subscriber will not be reimbursed for all of the fees paid to date, and as per the Tax Act, the subscriber could lose the income in the plan if he or she is not eligible for an accumulated income payment, or if the subscriber does not transfer the plan to another RESP. If the beneficiary does not attend a recognized post-secondary institute and program, the income on the plan could be lost if not withdrawn as an accumulated income payment and the government grants will have to be repaid to the applicable government. The subscriber will not be eligible to receive any of the loyalty bonus that has accumulated on the plan. If contributions are withdrawn for non-post-secondary education purposes, some of the government grants will have to be returned to the applicable government. If contributions are higher than the $50,000 limit allowed by the Tax Act, the subscriber may have to pay a penalty tax. We cannot guarantee that the beneficiary will qualify for education assistance payments, or how much the education assistance payments will be. The money in our Flex First Plan is invested conservatively in Canadian fixed income securities and certain equities. However, there is some investment risk involved in investing in securities. 23

27 Subscribers Who Can Be a Subscriber? Any individual who is a Canadian resident and has a Social Insurance Number (SIN) or a Public Primary Caregiver (i.e. a child care department, agency, institution or organization eligible to receive payments under the Children s Special Allowances Act) Social Insurance Number may subscribe to the Flex First Plan. A company or trust may not act as subscriber to the plan. Also, securities regulations require that all enrolment applications be signed in the province where the subscribers reside and where the sales representative holds a license except where the Sales Representative may have been granted a Client Mobility Exemption ( CME ). Please refer to the Compliance Policies and Procedures Manual for details regarding the CME. RESPs allow the designation of a joint subscriber (defined as a spouse or common-law partner). The subscriber or joint subscriber can contribute to several Registered Education Savings Plans for the same beneficiary. Is It Possible to Change a Subscriber? Change while subscriber is alive: At least one original subscriber must remain on the plan, unless an individual has acquired the subscriber's rights under the RESP as a result of a decree, order or judgment or under a written agreement relating to the division or property following a breakdown of marriage or common-law partnership. Change upon subscriber's death: Following the death of a subscriber, the plan may continue in the estate of the individual, or a new subscriber may be appointed. The subscriber s last will and testament may describe who will acquire the deceased individual s rights as a subscriber, or the executor may choose to assign a replacement subscriber. In the case where there is no Will, the subscriber s family may apply for a court appointed administrator, who is authorized to provide instructions regarding the replacement of the original subscriber. Add a joint subscriber if one was not named when plan was opened: Only the spouse (married, common law or same sex) can be added as a joint subscriber. 24

28 Beneficiary Who can be a Beneficiary? The beneficiary can be any age when a Flex First plan is opened. As required by federal government regulations, the beneficiary must be a Canadian resident and must have a Social Insurance Number in order for the plan to be registered and be eligible for government grants. It is the subscriber s responsibility to submit a valid Social Insurance Number to us. Subscribers should contact Employment and Social Development (Canada) to request a Social Insurance Number for his or her child. Alternatively, the Social Insurance Number application can be downloaded from the Employment and Social Development of Canada website A child may be the beneficiary of more than one RESP. For example, a parent and grandparent may both open separate RESPs for the same child. If the subscriber is someone other than the beneficiary s custodial parents, Knowledge First Financial is required to send a letter to the custodial parent(s) in order to let them know that a plan has been opened in their child s name. This is to help avoid over contribution situations. See the Contributions section for more information regarding over contributions. What if the Beneficiary does not have a Social Insurance Number? The subscriber can open a non-registered plan for the beneficiary. We must receive a valid Social Insurance Number within 18 months from the day the plan is opened or the plan will be closed. Grantonly plans require the beneficiary to have a valid Social Insurance Number when the plan is opened. Social Insurance Number applications can be downloaded from the Employment and Social Development of Canada website How are Contributions Handled for Non-Registered Plans? All contributions made into the plan before it is registered as an RESP will be placed into a non-registered holding account (holding account). The holding account is not eligible for tax benefits or grants. The Sales charge and other fees are deducted from this account. Net contributions in the non-registered holding account earn income. Once we receive the beneficiary s Social Insurance Number, all contributions and income earned on contributions will be transferred to the RESP savings account 2. The total amount of contributions made by the subscriber plus any income earned will be considered eligible to receive government grants. 2 The fees that were deducted from the contributions will be credited back to the RESP before the transfer, and then deducted again after the transfer has occurred. 25

29 Any income earned in the non-registered holding account will be included in the subscriber s taxable income in the year it was earned. If the plan is closed before it is registered, the net contributions plus income earned in the holding account will be returned to the subscriber. We offer every Flex First subscriber a Sales charge Refund feature (described later) which allows a portion of the sales charge paid to be refunded under certain conditions. Is it Possible to Change a Beneficiary? The subscriber can set anyone as the new beneficiary as long as the subscriber provides a valid Social Insurance Number and proof that the beneficiary is a Canadian resident. How are Previous Contributions Handled if the Beneficiary is Changed? When a beneficiary under the Flex First Plan is replaced by another, contributions made for the former beneficiary will be considered to have been made for the new beneficiary. Contributions made on behalf of the new beneficiary as a result of a change of beneficiary will not create an over contribution, with respect to the maximum RESP contribution lifetime limit of $50,000 for the new beneficiary, when one of these two criteria is met: 1. The new beneficiary is the brother or sister of the former beneficiary and is under 21 years of age, or: 2. The two beneficiaries (former and new) are related to the subscriber by blood or adoption and neither beneficiary has reached 21 years of age. However, if the new beneficiary does not meet the above two criteria and already has an RESP, the previous contributions must be added and considered in the calculation of eligible future contributions for the new beneficiary's RESP. The additional contribution history may create an over contribution situation for the new beneficiary. How are Previous Grants Handled if the Beneficiary is Changed? To keep any Canada Education Savings Grants (CESG), Saskatchewan Advantage Grant for Education (SAGES) or Quebec Education Savings Incentive (QESI) grants paid into the Flex First Plan, one of the same two criteria outlined in the section above must be met. Since the Canada Learning Bond (CLB) is not transferrable between different beneficiaries, it will have to be refunded to the government when the beneficiary changes. 26

30 Total Contribution Goal The total contribution goal is the total amount of contributions the subscriber is planning to make into his or her plan. The total contribution goal is set at the time of enrolment. The total contribution goal can be revised any time after enrolment and is subject to minimum and maximum limits. What is the Minimum Total Contribution Goal? The minimum total contribution goal for a plan is $500, unless the subscriber opens a grant-only plan (described later) which does not require any contributions to be made. What is the Maximum Total Contribution Goal? There are three different methods to calculate the maximum total contribution goal for the Flex First Plan 3. Regular Ongoing Contributions (bi-weekly, semi-monthly, monthly and annual contributions) The maximum total contribution goal is based on contributions already made into the plan (if any), plus the regular ongoing contribution amount multiplied by the number of future contributions (based on the contribution frequency selected) that can be made between the current date and December 31 st of the year the beneficiary turns age 17. Contributions already made + ( Ongoing contribution amount X Number of remaining contributions until Dec 31 of year beneficiary turns 17 4 ) = Maximum Total Contribution Goal 3 The total contribution goal for any plan cannot exceed $50,000, which is equal to the maximum that can be contributed to all RESPs for each beneficiary. 4 The total contribution goal for any non-registered Flex First plan cannot exceed $48,000 to help ensure that any non-registered income earned, prior to the plan being registered, would not result in a plan exceeding the $50,000 lifetime contribution limit. This is because the non-registered income will be classified as a contribution when it s moved to the registered plan and will be counted towards the lifetime limit. 27

31 Lump Sum Payments This is when the subscriber chooses to make only lump sum contributions, where regular ongoing contributions have not been established. The total contribution goal will equal (but not exceed) the amount of the lump sum contribution. Lump sum contribution = Total Contribution Goal Lump sum contribution 1 + Lump sum contribution 2 = New Total Contribution Goal Contributions Past December 31st in the year the beneficiary turns 17 years of age If the subscriber makes contributions after December 31 st of the year his or her beneficiary turns 17 years of age, after the current total contribution goal has been reached, each of these additional contributions will automatically increase the total contribution goal by the amount of the contribution. Existing total contribution goal in effect at December31st of the year the beneficiary turns age 17 + Additional contributions made after Dec 31, of the year the beneficiary turns 17, and after the existing total contribution goal has been reached = New Total Contribution Goal These particular total contribution goal increases will not be charged a sales charge. 28

32 Contributions About Contributions The subscriber can make lump sum contributions into the plan at any time. The subscriber can also increase or decrease his or her contribution amounts and change his or her contribution frequency at any time. However, the total amount of the contributions cannot exceed the plan s total contribution goal. Once the contributions in the plan reach the total contribution goal, the subscriber will need to increase the total contribution goal to continue making contributions. The subscriber and sales representative will receive a notification when a plan is approaching the total contribution goal. How are Contributions Made? There are six ways to contribute to the Flex First Plan. They consist of: bi-weekly 5, semi-monthly 6, monthly, annually, lump sum (ad-hoc) contribution and funds transferred from another RESP provider. We accept contributions by cheque or by pre-authorized deposit. We do not accept cash or credit card for any contributions. Contributions can be made into the Flex First Plan up to December 31 st of the 31 st year following the year in which the plan was opened. A maximum combined total of $50,000 per beneficiary can be contributed towards all RESPs that are held on their behalf. What are the Minimum Contribution Limits? Contribution Type Minimum initial lump sum 7 $500 subsequent lump sum $50 bi-weekly $12.50 semi-monthly $12.50 monthly $25 annual $300 grant only plan $0 Minimum contribution requirements do not apply when the plan only receives the Canada Learning Bond or the Saskatchewan Advantage Grant for Education, where subscriber contributions are not required. 5 Bi-weekly contributions are made every two weeks for a total of 26 contributions in a year. 6 Semi-monthly contributions result in two contributions every month for a total of 24 contributions in a year. 7 The initial lump sum contribution is only required when a regular contribution frequency is not chosen when the plan is opened. 29

33 What are the Implications of Exceeding the $50,000 Contribution Limit? The obligation to act in the event of an RESP over-contribution rests with the subscriber. The subscriber will get a notification from the Canada Revenue Agency (CRA) indicating he or she has over-contributed for a specific beneficiary. The subscriber has a choice at this point where he or she can either: 1. Withdraw the over-contribution amount from the beneficiary s plan (or from one of the plans if there are more than one for the same beneficiary) and bring the RESP contribution total down to $50,000, or 2. The subscriber can do nothing, in which case he or she could be subject to a tax penalty. If there are multiple RESP plans spread out over more than one RESP promoter, the subscriber and the government are the only ones who know that an over-contribution exists for a particular beneficiary. The subscriber can contact the chosen RESP promoter and make arrangements to withdraw the appropriate amount of contributions from his or her RESP. The subscriber should advise the promoter that he or she is withdrawing to fix an over-contribution situation, so that the Canada Education Savings Grant, and Quebec Education Savings Incentive, if any, is not affected. In these cases, the government will provide relief from the rule that says when contributions are withdrawn from an RESP for non-educational purposes then the corresponding grant must be returned. If the promoter does not know this is an over-contribution fix, then the promoter may process the withdrawal as a standard non-post-secondary education (non-pse) withdrawal of contributions which would result in grant being returned. What are the Tax Consequences for Excessive Contributions? A 1% monthly tax penalty applies if the combined contributions made to all RESPs on behalf of a beneficiary exceed the total $50,000 limit set by the federal government. Tax penalties are payable by each subscriber on his or her share of the excess contributions that are not withdrawn by the end of the month. The tax penalties payable by each subscriber must be paid to the Canada Revenue Agency within 90 days following the end of the year in which the excess contributions were made. The subscriber must complete the appropriate income tax form as stipulated by the Canada Revenue Agency. 30

34 Are Pre-Authorized Deposits Available? The subscriber can make pre-authorized deposits and payments by cheque for monthly, annual and lump sum contributions. Bi-weekly and semi-monthly contributions can only be made using pre-authorized deposit. Making payments by cheque for monthly contributions is not recommended. Cheques for monthly contributions should only be accepted if there are a series of post-dated cheques provided, preferably for the next 12 months. Contribution Type Pre-authorized deposit Cheque lump sum bi-weekly - semi-monthly - monthly - annual All pre-authorized deposits will automatically stop once the plan reaches the total contribution goal. In a situation where the next regular contribution would make total contributions greater than the total contribution goal, we will automatically reduce that contribution to an amount that will result in the total contributions to be equal to the total contribution goal. Can the Subscriber make Lump Sum Contributions? In addition to the regular ongoing pre-authorized deposits or cheque payments, we allow the subscriber to make lump-sum contributions at any time as long as the additional contribution does not exceed the total contribution goal. Can the Subscriber Increase the Total Contribution Goal? The subscriber can increase the total contribution goal at any time after a new plan is opened, subject to the maximum total contribution goal limits described earlier. The subscriber will be required to sign a form which authorizes us to increase the total contribution goal. A minimum increase of $250 to the total contribution goal is required and all increases will result in additional sales charge 8. The subscriber has two choices when increasing the contribution amount. They can increase the total contribution goal to align with the revised contribution amount or direct the contributions towards the existing total contribution goal. 8 Except when contributions are made after December 31 st in the year when the beneficiary reaches age 17, and the total contributions made to date equals (reaches) the existing total contribution goal. 31

35 Directing the increase to the existing total contribution goal will allow the subscriber to reach his or her total contribution goal faster and to pay outstanding sales charge faster. In this case there are no additional sales charge payable to the plan. When increasing the total contribution goal the subscriber has to provide authorization to increase the total contribution goal and additional sales charge will be charged. Can the Subscriber Reduce the Total Contribution Goal? The subscriber may reduce the total contribution goal at any time, as long as the revised total contribution goal is equal to, or greater than the amount of gross contributions already made to the plan. In addition, a minimum total contribution goal of $500 is required to keep the plan open. The subscriber will be required to sign a form which authorizes us to decrease the total contribution goal. When a total contribution goal is reduced, the subscriber may be eligible to receive a portion of the sales charge that has already been paid, in accordance with the sales charge refund provision. When the total contributions that the subscriber has made into the plan equal the total contribution goal, the plan is considered paid-up. The total contribution goal on a paid-up plan cannot be reduced. Contribution withdrawals will not reduce the minimum total contribution goal that the subscriber can set. Can the Subscriber Change the Contribution Amount and Frequency? A subscriber can change the contribution amount and frequency at any time, up to 10 business days before the next pre-authorized deposit date. The changes are subject to the maximum and minimum limits. Also, each plan can only have one regular contribution frequency (monthly, annual, bi-weekly, semi-monthly) at any one time. The subscriber can stop contributions if needed, and restart when desired. Can the Subscriber Open a Plan Without Making Contributions? A subscriber can open a grant only plan without making any contributions. This will allow the subscriber to collect Canada Learning Bond and BC Training and Education Savings grants for which his or her beneficiary is eligible. The total contribution goal for a grant only plan will be set to zero. Can the Subscriber Start Contributing to a Grant Only Plan? A subscriber can start making contributions to a grant only plan without having to open a new plan. The subscriber can start making contributions by providing us with a written request to increase the plan s total contribution goal. The same minimum and maximum limits, as stated earlier, relating to contributions and the total contribution goal will now apply. 32

36 Are there Contractual Requirements When Changing the Total Contribution Goal? Increasing or reducing the total contribution goal is considered a change to the terms of the plan and the subscriber s written authorization is required. 33

37 Total Contribution Goal - Auto Reduction Feature What is the Auto TCG Reduction Feature? If the subscriber reduces their regular ongoing contribution amount and/or changes the contribution frequency for a period of more than 6 months, and if they have not yet paid the entire sales charge for the agreement, then the TCG pertaining to the agreement will be recalculated. The maximum total contribution goal will be automatically recalculated when the following three conditions occur: 1. The subscriber reduces or stops his or her regular ongoing contributions, and 2. The subscriber does not resume his or her regular contributions at the same or higher level after six months, and 3. The subscriber has not yet paid the entire sales charge due on the plan. How is the Revised Total Contribution Goal Calculated? Two calculations are performed and whichever resulting amount is greater will be deemed the revised total contribution goal, if that amount is less than the plan s existing total contribution goal. The first calculation is based on current and anticipated contributions. This is the total contribution goal a subscriber would achieve based on the contributions he or she already made into the plan, plus the future contributions the subscriber would make if the current regular contribution amount and frequency of contributions were unchanged. Calculation #1: The revised total contribution goal equals the gross contributions made to date plus the total amount of future anticipated contributions (based on reduced contribution level), until December 31 st of the year they turn 17 years old. Current gross contributions + Future Contributions = Revised total contribution goal 34

38 The second calculation is based on sales charge already paid. This is what the total contribution goal would be if the sales charge already paid into the plan represented 100% of sales charge being paid. Under this premise, dividing the sales charge paid by the sales charge rate (9.5%) provides a total contribution goal assuming the entire sales charge due has been collected. This second calculation ensures that we will not automatically reduce the total contribution goal to an amount that will trigger an sales charge refund. Calculation #2: The revised total contribution goal equals the amount of the sales charge collected to date divided by the sales charge rate for the plan. Sales charge collected Sales charge rate = Revised total contribution goal Example In this example the beneficiary is 14 months old when the plan is opened. The subscriber wants to make monthly contributions of $100 and set a total contribution goal of $20,000, based on the remaining number of future contributions until December 31 st of the year the beneficiary turns 17 years old (which is 200). The sales charge due on this plan is $1,900 ($20,000 X 9.5%). After making regular contributions for the first four months, the subscriber reduces his or her monthly contributions to $50 for the next six months. After six months, the auto reduction feature is triggered. Calculation #1: Revised total contribution goal based on revised contributions = $10,200 Current Gross Contributions (10) Future Contributions remaining until Dec 31 st of year beneficiary turns 17 equals 190 Four months at $100 $400 Six months at $50 $300 Contributions to date: $ months X $50 = $9,500 Current gross contributions + Future Contributions = Revised total contribution goal $700 + $9,500 = $10,200 35

39 Calculation #2: Revised total contribution goal based on sales charge collected = $7,368 Sales Charge Collected Revised Total Contribution Goal Based on Sales Charge Collected Four months at $100 $400 Six months at $50 $300 Contributions to date: $700 $ % = $7,368 $700 has gone towards sales charge Calculation #1 results in a higher value than Calculation #2. Therefore, $10,200 will be used to compare to the current total contribution goal. The revised total contribution goal for this plan will be $10,200 since it is less than the current total contribution goal of $20,000. Due to the revised total contribution goal, the sales charge needs to be recalculated. This will result in a revised sales charge due 9. Recalculating Sales charge Due and Outstanding Fees Remaining Sales charge % X Revised total contribution goal = Revised sales charge due - Sales charge already paid = Outstanding sales charge remaining 9.5% X $10, = $ $ = $ To understand the auto reduction feature and the impact to sales chargesales charge, refer to Addendum I, Auto Total Contribution Goal Reduction Feature Examples. 36

40 Loyalty Bonus Program The loyalty bonus is a partial return of sales charge paid on the plan, which can be received tax-free by the subscriber or beneficiary. The purpose of the loyalty bonus is to provide an incentive for a subscriber to remain with our plans. The loyalty bonus also encourages a subscriber to make early lump sum payments, and to transfer a balance from other RESP promoter to our plan. The amount of loyalty bonus that can be accumulated depends on the amount of net contributions deposited into the plan and the length of time they remain in the plan. The greater the amount of net contributions and length of time in the plan, the greater the loyalty bonus that can be accumulated. Loyalty bonus payments are made at the end of each calendar month for those plans which meet the qualification criteria. In addition, the loyalty bonus: Is paid on net contributions, Accumulates separately from contributions, Does not earn interest, or attract grants, and Maxes out if the accumulated bonus equals the sales charge paid. How does the Loyalty Bonus Program Work? At the end of each calendar month, and if the plan qualifies at that time, we will calculate a loyalty bonus which will accumulate on behalf of the plan. The calculation of this bonus is based on a percentage of the total amount of net contributions that were in the plan at the beginning of the calendar month, less any contribution withdrawals the subscriber has made during that month. The bonus calculation does not include any accumulated loyalty bonus, grants and income that are in a plan. The loyalty bonus percentage will be no less than 0.66%, per year, expressed as a monthly nominal annualized rate which translates to 0.055% per month (or 0.66% divided by 12). The calculated monthly loyalty bonus amount will be rounded to the nearest cent. Net Contributions = Contributions Special - Sales Charge - processing - fees/taxes Contribution withdrawals 37

41 The loyalty bonus is paid to the subscriber or beneficiary when and if the beneficiary enrolls in a postsecondary program that qualifies under the Income Tax Act. Loyalty bonus payments are not eligible to attract grant from either the Canada Education Savings Plan, Quebec Education Savings Incentive or the Saskatchewan Advantage Grant for Education Savings programs, and they do not impact the maximum RESP contribution limit for the plan. Knowledge First Financial may choose to adjust the loyalty bonus percentage in the future, but the percentage credited will not be less than the minimum annualized rate of 0.66%. Example of How the Loyalty Bonus Works The table on the following page illustrates how the loyalty bonus works. In this example the beneficiary is 16 months old when the plan is opened. The subscriber has set a total contribution goal of $10,000, making monthly contributions of $100. The subscriber will pay $950 in sales charge at a 9.5% sales charge rate. Notice how the loyalty bonus payments continue to be made past the date when the total contribution goal has been reached Additional examples are available in Addendum III Loyalty Bonus Illustrations 38

42 The plan collects the loyalty bonus once the sales charge is paid and net contributions accumulate Month Monthly Contributions Made during the month Total Contributions Sales Charge Total Sales Charge Net Contributions 11 Loyalty Bonus Accumulated Loyalty Bonus 1 $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $1, $50.00 $ $0.00 $0.00 $ $ $1, $0.00 $ $50.00 $0.03 $ $ $1, $0.00 $ $ $0.08 $ $ $1, $0.00 $ $ $0.14 $ $ $9, $0.00 $ $8, $4.81 $ $ $9, $0.00 $ $8, $4.87 $ $ $10, $0.00 $ $8, $4.92 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ The plan can continue to collect the loyalty bonus once the total contribution goal has been reached Total loyalty bonus accumulated to date 11 Net contributions in the plan at the beginning of the month and before the monthly contribution was made 39

43 Advantage of Early Contributions The following table illustrates the advantage of making higher contributions into a plan. The following example illustrates the loyalty bonus payments a subscriber would receive based on different contribution frequencies and amounts for a new born. Total Contribution Goal Contribution Type Accumulated Loyalty bonus 12 Year 5 Year 10 Year 15 Year $20,000 $20,000 one-time transfer $588 $1,185 $1,783 $1,900 $20,000 $20,000 $20,000 $5,000 annual contribution for 4 years $2,000 annual contribution for 10 years $100 monthly contribution for 200 months $390 $987 $1,585 $1,900 $131 $591 $1,189 $1,547 $45 $278 $709 $1,056 Eligibility Requirements for Loyalty Bonus Eligibility to receive a loyalty bonus is assessed at the end of each calendar month and must meet all of the following requirements: the plan must be registered and open, the current total contribution goal for the plan is $2, or greater, and the subscriber has not begun receiving payments from the plan, or has not reached the loyalty bonus limit, as described below: The plan will continue to receive loyalty bonus payments, once the above qualification criteria are met, until: a) there is a post-secondary education (PSE) payment made from the plan, b) an education assistance payment (EAP) is made from the plan, c) an accumulated income payment (AIP) is made from the plan, or d) the loyalty bonus equals the amount of sales charge paid into the plan. 12 All figures are rounded to the nearest dollar 13 After month

44 Any bonus payments missed due to not meeting eligibility requirements at the time of the scheduled payments will not be carried forward and will not be paid retroactively if eligibility requirements are met later on. This example illustrates how the loyalty bonus is affected when the subscriber withdraws a portion of his or her net contribution. The subscriber has $3,000 in net contributions as of March 1 st. On the 17 th of March the subscriber withdraws $200 from his or her plan. On the 29 th of March, the subscriber makes his or her regular monthly contribution of $100. The monthly loyalty bonus calculation is performed at the end of March: Net Contributions at the beginning of March: $3, Less Contribution withdrawals during March: $ (200.00) $2, Loyalty Bonus for March: $2, x ( ) = $1.54 What is the Criteria to Receive the Loyalty Bonus Payout? The beneficiary must provide proof of enrolment in a post-secondary education institution and program that qualifies for an RESP payment under the Income Tax Act (ITA). The loyalty bonus that has accumulated will be forfeited if the plan is closed or transferred to another RESP promoter prior to enrolling in a qualifying post-secondary education program. Once qualified, the loyalty bonus can be returned to either the subscriber or beneficiary based on the instructions from the subscriber. For more information on how the bonus can be paid out, please refer to Contribution Withdrawals. 41

45 Discretionary Foundation Scholarship Payments (Foundation Top-ups) As a not for profit corporation, the Foundations policy is to also share available excess revenue with beneficiaries receiving education assistance payments. These payments are called Discretionary Foundation Scholarship Payments (also known as Foundation top- ups ). A beneficiary must attend a qualifying post-secondary education program, and receive an education assistance payment to qualify to receive the Foundation top-up. Since 2004, the Foundation has used a portion of its available excess revenues to issue Foundation topups to beneficiaries receiving education assistance payments from the Family Group and Classic Plans. The Foundation expects to continue to use available excess revenues for this purpose, and plans to extend the distribution of its excess revenues to the Flex First Plan. Since the amount of excess revenue in any year cannot be predicted, these are discretionary payments and are not guaranteed. A beneficiary should not count on receiving a discretionary payment. The Foundation decides if it will make a payment in any year and how much the payment will be. If the Foundation makes a payment, it may be less than what was paid in the previous year. A beneficiary may also receive less than what the Foundation pays beneficiaries in other types of plans sponsored by the Foundation. 42

46 Plan Transfers Transferring Funds from another RESP Promoter to Flex First Plan It is possible to transfer RESP funds from another promoter to the Flex First Plan. The subscriber of the other (transferring) RESP must be the same as the subscriber listed on the Knowledge First Foundation RESP, and the other plan must have never made any accumulated income payments to the subscriber. The RESP amounts transferred from another promoter are not considered new contributions and, consequently, are not eligible for any additional Canada Education Savings Grant, Saskatchewan Advantage Grant for Education or the Quebec Education Saving Incentive. It is possible to make partial or total transfers from another RESP. For every transfer, the transferring plan must provide the amounts of contributions, grants and income that have accumulated in the plan. How it works: the subscriber makes a request to transfer their RESP and complete an application for Flex First beneficiary must be a Canadian resident plan assets are transferred from the other RESP promoter into Flex First if the same beneficiary is on both Plans, he or she does not have to be a Canadian resident or have a SIN, however, if this is the case no other contribution can be made to the plan (except the funds that are being transferred). Government grants will be transferred if: Flex First offers those government grants, and for the Canada Learning Bond, the same beneficiary is in both plans. For all other government grants: either the same beneficiary is in both plans, or the beneficiary in Flex First is under 21 years old when this Plan is entered into and has at least one parent in common with the beneficiary in the plan being transferring from. Otherwise, the subscriber may have to repay all or some of the government grants. If Flex First is not for the same beneficiary, and the new beneficiary already has an RESP, or contributions have already been made to the plan for the new beneficiary, total contributions for the new beneficiary may be higher than the maximum allowed by the Tax Act, and they may have to pay a penalty tax. Implications to the Total Contribution Goal The contribution portion of the funds transferred from another RESP promoter can be directed towards the current total contribution goal or can be used to increase the total contribution goal. Directing contributions from another RESP towards the current total contribution goal: The subscriber can direct transferred contributions towards the current total contribution goal as long as there is enough 43

47 contribution room remaining. In other words, the transfer amount will not cause the total contribution goal to be exceeded. If applicable, any remaining sales charge that is outstanding for the total contribution goal will be paid from the contribution transfer amount. Using transferred-in contributions from another RESP to increase the total contribution goal: The transferred-in contribution amount can also be directed towards increasing the total contribution goal by an amount that would allow that contribution amount to fit into the new total contribution goal. When there is a sales charge remaining to be collected for an existing total contribution goal, the transferred-in contribution amounts are used to pay the outstanding sales charge. An exception occurs when the subscriber increases his or her total contribution goal to an amount that equals the transferred-in contribution amount. In this instance, the subscriber can request to deduct sales charge, from the transferred-in contribution, for only the increase in the total contribution goal 14. This will result in outstanding sales charges due that still exist on the previous total contribution goal. 14 The request must appear in the notes field on the application form. 44

48 Plan Transfers from Flex First to another RESP Promoter The subscriber can, at any time request to transfer his or her funds to another RESP promoter. To complete the transfer, both plans have to be registered and at least one subscriber has to be the same. If there is more than one subscriber on the existing Flex First Plan, both subscribers must authorize the transfer. The transfer must meet the Employment and Social Development Canada transfer eligibility rules and only full transfers are allowed. No funds will remain in the plan after the transfer is completed. Net contributions, grants, and income are transferrable. Any loyalty bonus that has accumulated will be forfeited and returned to us. The subscriber will receive any sales charge that may be due under the sales charge refund provision. If the receiving promoter does not accept all of the grants that are currently in the Flex First Plan, then we will return non-acceptable grant monies to the appropriate government (federal or provincial). How it works: the subscriber completes a plan transfer form and an application for the new RESP we ll transfer the contributions in the plan (less fees paid to date) and the income earned to the new RESP the loyalty bonus accumulated in the Flex First plan will not be transferred to the new RESP we ll transfer the income the government grants have earned to the new RESP we ll transfer all or some of the government grants if: o the new RESP meets the requirements of the Tax Act and the government grants act, and o for the Canada Learning Bond the same beneficiary is in both plans.. For all other government grants, either the beneficiary in the new plan is under 21 years old when the new Plan is entered into and has at least one parent in common with the beneficiary in the plan they are transferring from, or the same beneficiary is in both plans. Otherwise, all or some of the government grants may have to be returned to the appropriate government agency. There are special rules if the new RESP has more than one beneficiary, for example every beneficiary must be a brother or sister of every other beneficiary in the plan. If the plan is not for the same beneficiary and the new beneficiary already has an RESP, or contributions have already been made to the plan for the new beneficiary, total contributions for the new beneficiary may be higher than the maximum allowed by the Tax Act, and the subscriber may have to pay a penalty tax. 45

49 Transferring Funds from a Family Plan to a Flex First Plan The subscriber can transfer from a Family Plan to a Flex First Plan. To complete at least one subscriber has to be the same on both plans. If there is more than one subscriber on the existing Plan, both subscribers are required to authorize the transfer. The subscriber must request the transfer before July 31 st of the specified year of maturity of the original Family Group Plan, or any time before the original beneficiary turns 19 years of age, whichever comes first. The net principal, income earned on contributions, grant, and grant income will be transferred from the Single Student Plan. If the transfer is from the Group Plan, income earned on contributions will not be included in the transfer. Any sales charge paid on the original Family Plan will be credited to the Flex First Plan. The RESP amounts transferred from the Family Plan are not considered new contributions and consequently, are not eligible for any additional Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings, or the Quebec Education Saving Incentive. The Family Plan must not have made an accumulated income payment to the subscriber. How it works: the subscriber makes a request to transfer their plan and complete an application for Flex First we ll transfer the contributions in the plan (less fees) and the income earned on government grants to Flex First the income earned on contributions will only be transferred to the Flex First Plan if the transfer is coming from the Single Student Plan. Income earned in the Group Plan will be transferred to the beneficiary group income pool for that plan. We ll transfer all or some of the government grants if: for the Canada Learning Bond, the same beneficiary is in both RESPs. For all other government grants, either the beneficiary in Flex First is under 21 years old when the Plan is entered into and has at least one parent in common with the beneficiary in the plan they are transferring from, or the same beneficiary is in both RESPs. Otherwise, all or some of the government grants may have to be returned to the appropriate government agency. The transaction fee for plan transfers will not be charged on a transfer from the Family Group Plan to Flex First. A transfer from the group plan to Flex First cannot be reversed. 46

50 Transferring Funds from the Flex First Plan to a Family Plan If the transfer is into the Family Group Plan the beneficiary transferring in from Flex First must be under 13 years of age. To at least one subscriber has to be the same on both plans. If there is more than one subscriber on the existing Plan, both subscribers are required to authorize the transfer. The Flex First Plan must not have made an accumulated income payment to the subscriber. The RESP amounts transferred from Flex First are not considered new contributions and consequently, are not eligible for any additional Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings, or the Quebec Education Saving Incentive. The amounts transferred from the Flex First Plan to the Family Plan will be set-up as a one-time deposit and are subject to sales charge 15. Any sales charge paid on the original Flex First Plan will be credited to the Family Plan. How it works: the subscriber completes a plan transfer form and an application for the new RESP we ll transfer the contributions in the plan (less fees paid to date) and the income earned to the new RESP the loyalty bonus accumulated in the Flex First plan will not be transferred to the new RESP we ll transfer the income the government grants have earned to the new RESP we ll transfer all or some of the government grants if: o the new RESP meets the requirements of the Tax Act and the government grants act, and o for the Canada Learning Bond, the same beneficiary is in both plans. For all other government grants, either the beneficiary in the new plan is under 21 years old when the new Plan is entered into and has at least one parent in common with the beneficiary in the plan they are transferring from, or the same beneficiary is in both plans. Otherwise, all or some of the government grants may have to be returned to the relevant government agency. There are special rules if the new RESP has more than one beneficiary. If the plan is not for the same beneficiary and the new beneficiary already has an RESP, or contributions have already been made to the plan for the new beneficiary, total contributions for the new beneficiary may be higher than the maximum allowed by the Tax Act, and the subscriber may have to pay a penalty tax. 47

51 Withdrawing Contributions Non-Post-secondary Education Contribution Withdrawals A subscriber can withdraw all or part of his or her net contributions at any time during the life of the plan without providing proof of enrolment into a qualifying post-secondary educational program. This is known as a non-post-secondary education ( Non-PSE ) withdrawal. However, a minimum total contribution goal of $500 is required to keep a plan open 16. For non-post-secondary education withdrawals, full and partial withdrawals are permitted. If the subscriber makes a non-post-secondary education withdrawal (before or after maturity), the Canada Education Savings Grant, the Saskatchewan Advantage Grant for Education Savings and the Quebec Education Savings Incentive will be returned to the appropriate government. Grant income will remain in the plan until it is paid out as part of an education assistance payment, withdrawn as an accumulated income payment, or donated to an educational institution of our choosing. Contributions are withdrawn in the following order: 1. Assisted contributions: contributions that were matched by grants (matching grants returned to government) 2. Unassisted contributions: contributions made on or after January 1, 1998 that weren t matched by grants 3. Pre-1998 unassisted contributions: contributions made on or before December 31, 1997 Net contributions are not taxed by the Canada Revenue Agency when returned to the subscriber or their beneficiary. When contributions are withdrawn from an RESP, the withdrawn amount will be counted as an RESP contribution when determining whether the $50,000 RESP contribution limit has been exceeded, even though the contributions were withdrawn. We reserve the right to pay out remaining funds in a plan if the total value of the funds currently held in the savings account, after withdrawal, would result in less than $350 remaining in the plan. Post-Secondary Education Contribution Withdrawals A subscriber can request to withdraw all or part of his or her net contributions and any accumulated loyalty bonus by providing proof of the beneficiary s enrolment at a post-secondary institution that qualifies for an RESP under the Income Tax Act. This is known as a post-secondary education ( PSE ) contribution withdrawal. Full and partial withdrawals are permitted. The person who receives this payment is the principal refund recipient. Net contributions are not taxed by the Canada Revenue Agency when returned to the subscriber or their beneficiary. 16 This minimum does not apply to grant only plans where subscriber contributions are not required. 48

52 Full and Partial Post-Secondary Education Withdrawals and Education Assistance Payments Full or partial payments are permitted and the subscriber can request: to have all or a portion of the net contributions and loyalty bonus paid first, or to have all or a portion of the education assistance payments paid first, or to withdraw a mix of net contributions, loyalty bonus and education assistance payments as indicated on the post-secondary education withdrawal form. Re-depositing Contribution Withdrawals The subscriber can re-deposit the contributions he or she withdrew from his or her plan without having to increase the total contribution goal or incurring any additional sales charge based on the contribution withdrawal amounts that are being repaid. However, non-post-secondary education withdrawals impact future RESP contribution room. Example 1: The subscriber has a $50,000 total contribution goal and has made all $50,000 contributions into his or her plan. Afterwards, the subscriber withdraws $5,000 of his or her contributions. The $5,000 withdrawal cannot be re-contributed since there is no longer any contribution room remaining. The maximum lifetime RESP contribution room is $50,000 per beneficiary. Example 2: The subscriber has a $50,000 total contribution goal and has made $45,000 contributions into his or her plan. Afterwards, the subscriber withdraws $5,000 of his or her contributions. The $5,000 withdrawal can be re-contributed. After this contribution, the subscriber could not make additional contributions to the plan as the $50,000 contribution maximum has been reached. 49

53 Education Assistance Payments An education assistance payment is any payment out of an RESP (not including contributions) to a beneficiary to help pay the cost of post-secondary studies including tuition, lodging, school supplies, transportation, food, etc. For a beneficiary to be eligible to receive the education assistance payment (made up of the income, and any government grants paid to the plan), he or she must be enrolled in, and provide proof of enrolment in a program post-secondary institution that qualifies for an RESP under the Income Tax Act. Beneficiaries are free to change programs and/or transfer between schools and remain eligible for EAPs. Receiving Education Assistance Payments Education assistance payments are issued directly to the beneficiary, by way of direct deposit or cheque, in amounts and at times that the subscriber or beneficiary requests provided that the following conditions are met: Proof of the beneficiary's enrolment in a qualifying post-secondary education program and institution must be included with the request for payment; The beneficiary must be a Canadian resident to receive the grant portion of an education assistance payment; The beneficiary must be a resident of Quebec to qualify for the Quebec Education Savings Incentive portion of an education assistance payment; Students who are not Canadian residents when they receive EAPs may have to pay either Canadian income tax or non-resident withholding tax on the payments. The education assistance payment cannot exceed $5,000 unless the beneficiary has completed at least 13 consecutive weeks in a program in the 12-month period before the payment is made; The education assistance payment cannot exceed $2,500 if the beneficiary is enrolled in a specified program that includes at least 12 hours per month of instruction time and where the beneficiary is at least 16 years old; The beneficiary can receive education assistance payments for up to six months after he or she is no longer attending a post-secondary institution, provided that they would have otherwise qualified for those payments. In this case, the former student must furnish proof of attendance for his or her last session. The education assistance payment is taxable income and the beneficiary must include this income on his or her tax return for the year in which the payment was received. A beneficiary who is not a Canadian resident when receiving his or her education assistance payment may have to pay a non-resident withholding tax. We reserve the right to pay out remaining funds in the plan, if the remaining funds would be less than $350 after the education assistance payment is made. 50

54 What makes up an Education Assistance Payment? Subscribers inform us of how much they would like the education assistance payments to be based on the beneficiary s expenses. The amount of an EAP depends on the: Plan portion which includes - o Income earned on contributions to the plan plus, Grant portion which includes - o Grant money collected plus, o Income earned on government grants. These amounts are paid proportionately. For example, if 50% of the income earned on the contributions is to be paid out as an EAP, then 50% of the government grants and grant income must be paid as part of the EAP. Foundation Available Excess Revenue top-up The amount paid from Knowledge First Foundation s available excess revenue as an EAP top-up is at the discretion of the Foundation and may vary from year to year. There is no fixed formula to calculate this discretionary payment and the Foundation is under no obligation to issue this top-up. 51

55 Eligible Studies - Institutions and Programs What are Eligible Post-Secondary Education Institutions? The following types of institutions are considered by the federal government as being recognized postsecondary educational institutions: A university, college (CEGEP) or any other educational institution located in Canada, including some technical and professional training schools, which have been certified by the Lieutenant Governor-in-Council of a province as a certified educational institution in application of the Canada Student Loans Act, or recognized by the Minister of Education of Quebec for purposes of that province's Student Loans and Scholarships Act; An educational institution in Canada recognized by the Ministry of Employment and Social Development Canada that offers courses aimed at providing or enhancing the skills required to exercise a profession; A university, college or other educational institution outside of Canada that offers post-secondary level courses. What is an Eligible Post-Secondary Education Program? A recognized post-secondary education program is any part-time or full-time program that meets the criteria listed below. In Canada o be at least 3 consecutive weeks in length, and o require at least 10 hours per week of instruction time, or o require at least 12 hours per month of instruction time, provided the student is over 16 years old. Outside of Canada o be at least 3 consecutive weeks in length of full time studies at a university, or o be at least 13 consecutive weeks in length at a university, college or other educational institution, and o be at an institution and program that would qualify for an EAP under the Tax Act. 52

56 When the Beneficiary Does Not Pursue Post-secondary Studies If the beneficiary decides not to pursue his or her post-secondary education studies, the subscriber has the following options: Name another Beneficiary The subscriber may name another beneficiary in the Flex First Plan and continue to contribute to the plan as long as the time limits regarding contributions and the plan s lifetime allow it 17. Refer to previous sections for more details regarding the handling of contributions and grants when the beneficiary is changed. Withdraw Contributions for Non-Post-Secondary Education Purposes The subscriber may withdraw all or part of his or her contributions without providing proof of enrolment in a post-secondary institution as a non-post-secondary education withdrawal. Refer to the section on nonpost-secondary education withdrawals for full details. Withdraw Income as an Accumulated Income Payment (AIP) An accumulated income payment is a payment of the accumulated income from an RESP that is not a part of an education assistance payment. The subscriber may withdraw this income if the subscriber is a Canadian resident and; the plan is at least 10 years old and every person who has been a beneficiary of the plan is at least 21 years old and is not eligible for an education assistance payment, or it s the 35 th year after the year in which the plan was opened, or every person who has been a beneficiary of the plan has died. The Minister of National Revenue may allow us to waive some of these conditions if the beneficiary is suffering from a severe and prolonged mental impairment. The accumulated income payment received from the plan will be treated as taxable income in the year the subscriber receives it and will be subject to an additional penalty tax of 20%. The T1172 accumulated income payment withdrawal tax form must be included in the subscriber's tax return following the year in which the payment was made. 17 A subscriber can keep the plan open for 35 years from the year of the application date; and contribute to the plan for 31 years from the year of the application date. 53

57 In Quebec, the subscriber is also subject to a provincial tax. In order not to exceed the 20% tax payable by subscribers in other provinces, the additional tax in Quebec is set at 8% and the additional federal rate is reduced to 12%. AIP Payment Conditions Once an accumulated income payment has been received, all income in the plan must be paid to the subscriber no later than the end of February of the year following the year in which the first accumulated income payment was made. We are required under the Income Tax Act to terminate the RESP on the last day of February in the year after an accumulated income payment is made from the plan. Any remaining grants in the Plan will be returned to the appropriate government. Transfer Income to an RRSP In order to eliminate or ease the tax impact of receiving the accumulated income payments, the subscriber may transfer the accumulated income to his or her RRSP or to a spousal RRSP, without having to pay taxes on the amount, as long as the subscriber has unused RRSP contribution room and does not exceed the age limit for making RRSP contributions. When the transfer takes place, the plan is terminated. Any remaining contributions are returned to the subscriber and any remaining grants are returned to the corresponding government. The maximum amount of the accumulated income that is available for transfer is $50,000 per subscriber. The subscriber may request us to transfer the payment directly into his or her RRSP or his/ her spouse's RRSP by returning the completed form T1171 Tax Withholding Waiver on Accumulated Income Payments from RESPs to us. Donate the Accumulated Income If the subscriber does not qualify for the income as an education assistance payment, and does not withdraw it as an accumulated income payment, once the RESP cancels or expires we will donate it to an educational institution of our choice. 54

58 Investment Strategy We conservatively invest contributions, government grants and the income they earn, mainly in Canadian fixed income securities, such as federal, provincial and/or municipal bonds, mortgage-backed securities, treasury bills and evidence of indebtedness of Canadian financial institutions with a Designated Rating. The greater of (i) all income in the Plan and (ii) 30% of total income, contributions and government grant monies in the Plan may also be invested in Canadian equities directly, US equities via certain ETFs that are traded on a stock exchange in Canada, and corporate bonds with a minimum BBB Rating. All equities and ETFs must be traded on a Canadian stock exchange. Our goal is to protect the principal value of contributions while generating income to help pay for the beneficiary s college or university education. The Plans portfolio advisors use a combination of investment strategies to achieve the investment objectives. Income from fixed income investments Interest is allocated to the Flex First Plan as it is earned. Realized gains and losses are spread over a 12 month period. Unrealized gains and losses are not allocated until they have been realized. This method of spreading the income allocated to the Flex First Plan results in smoother returns to the plan from year to year, which greatly reduces the volatility that can be found in the plan s annual investment rates of return; producing a more even distribution of income to the plan from year to year. Income from equities Dividends or distributions are allocated to the Flex First Plan in the month in which they are received. Realized and unrealized gains and losses are allocated monthly. See our website at knowledgefirstfinancial.ca for allocated investment returns for the Flex First Plan. 55

59 Fees and Expenses Sales Charge The subscriber will pay a one-time, up-front sales charge of 9.5% of the total contribution goal. This fee will be charged against the initial contributions until the sales charge is paid in full. Will there be an Additional Sales Charge Applied when Increasing the Total Contribution Goal? The subscriber will be responsible to pay an additional sales charge only when his or her total contribution goal is increased. The additional fee will be based on the amount of the total contribution goal increase. The fee will be charged against subsequent contributions until it is paid in full. Special Processing Fees The subscriber will be charged a one-time charge of $25.00 (plus applicable taxes) for deposits resulting in non-sufficient funds (NSF). Also, we charge $95 for a plan transfer out to another RESP promoter. We will notify the subscriber before adding or changing any special processing fees. We also reserve the right to apply additional fees in situations where there are requests relating to the administration of a plan that are considered excessive. Management Fee The management fee covers the ongoing cost of supporting our subscriber s plans, including plan administration, depository fees, investment counsel fees and custodial related cost for the plan. The target management fee is 1.3% and can increase or decrease, but will never exceed 1.5% per year (plus applicable taxes) of the total plan values for all Flex First plans. The management fee is deducted from the total monthly income before the income is allocated to the plan. Independent Review Committee Fee This is an annual fee for providing Independent Review Committee (IRC) services for subscribers payable from plan income. The Independent Review Committee fee is charged to total plan income from the combined income of all Flex First plans. The Independent Review Committee reviews and provides input on policies and procedures that deal with any conflict of interest matters. 56

60 Accounts The Subscriber s assets are held in different accounts depending on the type of funds that are held and for how long they are saving in a plan. The following diagram illustrates specific accounts that hold principal, income, grant payments, grant income, income held after plan maturity and income earned from the principal, and other sources after the plan matures. Education Savings Plan (ESP) Holding account non-registered funds Registered Education Savings Plan (RESP) Savings account registered funds (principal and income) Grant account grant and grant income 57

61 Holding Account If a child does not have a Social Insurance Number when the plan is purchased, the contributions are placed in an holding account. Money in the holding account is held in cash (and cash equivalents), in the name of the Knowledge First Foundation as the holding agent. Once the child s Social Insurance Number is received, Knowledge First Financial will transfer all contributions and income earned into the client s savings account, which is held in trust by the Plan s trustee. This amount transferred is used to calculate the CESG (and SAGES, QESI and AQESI). Fees deducted while contributions were in the holding account will be credited before the transfer, and then deducted from the savings account after the transfer. This will ensure grant eligibility on all deposits. If Knowledge First Financial has not received the child s Social Insurance Number within 18 months of the day the plan was opened, we ll cancel the plan and return the contributions in the holding account, plus income earned, less any fees, to the client. We will keep the amount paid in sales charge as a future credit for up to two years. Any income the contributions earn in the holding account will be included as taxable income for the client in the year it is earned. Savings Account Knowledge First Financial will open a savings account for the plan when we receive the child s Social Insurance Number. Contributions are received by the depository and credited to the client s savings account regularly. Grant account Government grants applied for and received are deposited into the student s grant account. Grants are paid out as part of the student s education assistance payment.. 58

62 Sales Charge Refund Feature Our return of sales charge feature offers a return of a portion of the sales charge that have already paid should the subscriber wish to cancel the plan, transfer their plan to another RESP or make a request to reduce the plan s total contribution goal. The sales charge refund provision also applies to non-registered plans. When Closing or Transferring a Plan to another RESP Promoter Step 1: Calculate non-refundable sales charge Total Contributions made to-date X Sales charge % = Non-Refundable sales charge Step 2: Calculate sales charge refund Total sales charge collected - Non-refundable sales charge amount = Sales charge refund amount In this example, the subscriber has made nine monthly contributions of $50 and decides to close the plan or transfer to another promoter. Of the subscriber`s contributions, $450 have gone to sales charge. Non-Refundable Sales Charge Total contributions made to-date X Sales charge % = Non-refundable sales charge $450 X 9.5% = $42.75 Sales Charge Refund Total sales charge collected - Non-refundable sales charge amount = Sales charge refund amount $450 - $42.75 = $ The subscriber is due a sales charge refund of $

63 When Reducing the Total Contribution Goal Step 1: Calculate new sales charge due based on revised total contribution goal 18 Revised total contribution goal X Sales charge % = New sales charge due Step 2: Calculate sales charge refund Total sales charge collected - New sales charge due = Sales charge refund amount In this example, the subscriber made the first nine monthly contributions, and subsequently reduced his or her total contribution goal to $3,000. The subscriber has made a total of $450 in contributions, from which $450 in sales charge has been collected. New Sales Charge Due Revised total contribution goal X Sales charge % = New sales charge due $3,000 X 9.5% = $285 Sales Charge Refund Total sales charge collected - New sales charge due = Sales charge refund amount $450 - $285 = $165 The $165 refund will be added to the subscriber s net contributions. The sales charge due for this plan have effectively now been paid in full with respect to the new total contribution goal. 18 The new total contribution goal for the plan must be equal to or greater than the total contributions made to-date. 60

64 Eligibility for a Sales Charge Refund In all cases where a sales charge refund is payable, the refund amount is first added to the subscriber s principal in his or her plan instead of being issued as a direct payment. Paying the sales charge refund directly to the subscriber would require us to repay some grant money (Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings and Quebec Education Savings Incentive) that was collected in relation to the refund amount, which would generally not be in the subscriber s best interest. In situations where the plan is either cancelled or transferred to another RESP, the plan closure or transfer will occur after we have added the refund to the net contributions in the plan. Subscribers are eligible to receive the return of sales charge paid up until the earlier of: the day the total contributions made to the plan equals the total contribution goal, or the day payments are received from the plan relating to post-secondary education (such as an EAP or a withdrawal of contributions while the beneficiary is attending eligible studies), or the day they receive an accumulated income payment from the plan, or the day an educational institution payment is made as per the Tax Act, or December 31st of the year in which the beneficiary turns 17 years of age. Do Contribution Withdrawals Impact the Sales Charge Refund Feature? Contribution withdrawals do not impact the sales charge refund amount since only the gross contributions that have been made into the plan are used in the refund calculations. Additional examples of the Sales Charge Refund Provision can be found in Addendum II Sales Charge Refund Provisions. 61

65 Canceling a Plan A subscriber can submit a written request to cancel his or her plan at any time or request to transfer the plan to another RESP promoter. A plan can be cancelled by: by requesting cancelation in writing within 60 days from the application date by withdrawing all contributions within 60 days from the application date by withdrawing all of the contributions and income in the plan by transferring the plan to another RESP. We can cancel the plan: if the subscriber withdraws income from their plan that isn t part of an EAP, we ll cancel the plan on the last day of February in the year after they make the withdrawal if the subscriber does not provide us with the beneficiary s Social Insurance Number within 18 months of opening the plan if the subscriber does not make a contribution that has cleared the banking system within the first 60 days after opening the plan. This does not apply to grant-only plans that are intended to only receive the Canada Learning Bond or the B.C. Training and Education Savings Grant, where subscriber contributions are not required; if after three years in the Plan the sum of contributions (less fees) and income earned in the plan is less than $350. The plan will expire on December 31 of the 35th year after the year in which it was opened. Once the plan is expired we will be unable to reinstate this plan. How it works: insurance coverage will end the plan will no longer be an RESP we will terminate the plan with the CRA subscriber will get contributions back (less fees) when the plan is cancelled as long as they ve cleared the banking system. Returned contributions are not subject to income tax. government grants in the plan will be returned to the appropriate government subscriber might be able receive the income, their contributions and government grants have earned as an accumulated income payment. If the subscriber does not qualify for the income and they don t withdraw it before the plan is cancelled, under the Income Tax Act we will be required to donate it to an educational institution of our choice. What happens when a plan is cancelled? When a registered plan is cancelled, we will de-register the plan with the Canada Revenue Agency and it will no longer be an RESP. We will also return the subscriber s net contributions in his or her savings account, as long as the contributions have cleared the banking system. 62

66 If eligible, the subscriber will also receive a portion of the sales charge paid under the sales charge refund provision. Net contributions and any sales charge that is returned are not taxed by the Canada Revenue Agency 19. Any remaining loyalty bonus in the plan will be forfeited. When a plan is closed, government grants in the plan will be returned to the appropriate government. What happens when a non-registered plan is cancelled? When a non-registered plan is cancelled we will return the subscriber s net contributions as long as it has cleared the banking system, along with any income earned. The income will be taxable in the year it was earned. What happens to the income earned when a registered plan is cancelled? If the subscriber is a Canadian resident and meets the requirements to receive an accumulated income payment (AIP) the income earned on contributions and government grants can be issued to the subscriber in this manner. If the subscriber does not qualify for an accumulated income payment at the time the plan is being cancelled or expired we will donate the income earned on contributions and government grants to an educational institution of our choice. 60 Day Free Look Period We offer each subscriber a 60 day free look period. The subscriber has the right to withdraw all of his or her contributions (including any sales charge paid) if he or she asks us within this 60 day free look period. Minimum Plan Value after 3 years At any time after 3 years following the date the plan was opened, we reserve the right, at our discretion, to cancel a plan if the total value of the contributions plus income earned on contributions in such a plan is less than $350. Can a Cancelled Plan be Re-opened? Once a plan is cancelled, it can never be reactivated. 19 For a non-registered plan, the income will be taxable in the year it was earned. 63

67 Addendum I Automatic Total Contribution Goal Reduction Feature Examples The following examples demonstrate how the auto TCG reduction feature works. To simplify the explanations, each example is based on the following facts: Monthly contributions of $100 Sales charge rate is 9.5% of the total contribution goal Six months of reduced contributions have triggered the auto reduction feature The sales charge has not been paid in full The plan is not paid in full (total contributions made do not equal the total contribution goal) Example 1 In this example the beneficiary is just over a year old when the plan is opened. The subscriber wants to make monthly payments of $100 for 200 months, which is also the number of future contributions remaining until December 31 st of the year the beneficiary turns 17 years old. This creates a total contribution goal of $20,000. The sales charge due on this plan is $1, deposits X $100 = $20,000 $20,000 X 9.5% = $1,900 sales charge due Scenario A: After making regular contributions for the first five months, the subscriber stops making contributions for next four months. After these four months, the subscriber resumes making his or her regular $100 contributions. Since the subscriber resumed making his or her monthly contributions within six months of stopping or reducing his or her scheduled monthly contributions, there is no change to the total contribution goal for this plan. Therefore, no adjustments are required 64

68 Scenario B: After making regular contributions for the first four months, the subscriber reduces his or her monthly contributions to $75 for the next six months and in the future. Since the subscriber did not resume making $100 monthly contributions within six months of reducing his or her scheduled monthly contributions, the total contribution goal for this plan will be recalculated after the 6 th month of reduced contributions. Revised total contribution goal based on contributions = $15,100 Current Contributions (10) Future Contributions remaining until Dec 31 st of year beneficiary turns 17 equals 190 Four months at $100 $400 Six months at $75 $450 Contributions to date: $ months X $75 = $14,250 Current contributions + Future contributions = Revised total contribution goal $850 + $14,250 = $15,100 Revised total contribution goal based on sales charge collected = $8, Sales Charge Collected Revised Total Contribution Goal Based on Sales Charge Collected Four months at $100 $400 Six months at $75 $450 Contributions to date: $850 $ % = $8, $850 has gone towards sales charge 65

69 The revised total contribution goal for this plan will be $15,100 since it is the greater of the two recalculated amounts. Due to the revised total contribution goal, the sales charge will need to be recalculated as well. This will result in a revised sales charge due. Recalculating Sales Charge Due and Outstanding Fees Remaining Sales charge % X Revised total contribution goal = Revised sales charge due - Sales charge already paid = Outstanding sales charge remaining 9.5% X $15, = $1, $ = $ Scenario C: After making regular contributions for the first four months, the subscriber reduces his or her monthly contributions to $25 for the next six months and in the future. Since the subscriber did not resume making $100 monthly contributions within six months of reducing his or her scheduled monthly contributions, the total contribution goal for this plan will be recalculated after the 6 th month of reduced contributions. Revised total contribution goal based on contributions = $5,300 Current Contributions (10) Future Contributions remaining until Dec 31 st of year beneficiary turns 17 equals 190 Four months at $100 $400 Six months at $25 $150 Contributions to date: $ months X $25 = $4,750 Current contributions + Future contributions = Revised total contribution goal $550 + $4,750 = $5,300 66

70 Revised total contribution goal based on sales charge= $5,789 Sales charge Collected Revised Total Contribution Goal Based on Sales charge Collected Four months at $100 $400 Six months at $25 $150 Contributions to date: $550 $ % = $5, $550 has gone towards sales charge The revised total contribution goal for this plan is $5, since it is the higher of the two calculations and because it is lower than the existing total contribution goal. Due to the revised total contribution goal, the sales charge will need to be recalculated. This will result in a revised sales charge due. Recalculating Sales charge Due and Outstanding Fees Remaining Sales charge % X Revised total contribution goal = Revised sales charge due - Sales charge already paid = Outstanding sales charge remaining 9.5% X $5, = $550 - $ = $0 Scenario D: After making regular contributions for the first 20 months, the subscriber reduces his or her monthly contributions to $50 for the next six months. Since the full sales charge ($2,000) was collected before the subscriber reduced his or her monthly contributions, there is no need to recalculate and reduce the total contribution goal since the auto total contribution goal reduction calculations will no longer calculate a total contribution goal that is lower than the existing goal. 67

71 Example 2 In this example the beneficiary is just over one year old when the plan is opened. The subscriber wants to contribute a total of $10,000 to the plan making monthly payments. This results in 100 future deposits and the sales charge due on this plan is $950. However, 200 is the number of future contributions possible until December 31 st of the year the beneficiary turns 17. $10,000 $100 = 100 deposits $10,000 X 9.5% = $950 Scenario A: After making regular contributions for the first five months, the subscriber stops making contributions for next four months. After these four months, the subscriber resumes making her regular $100 contributions. Since the subscriber resumed making his or her monthly contributions within six months of stopping his or her scheduled monthly contributions, there is no change to the total contribution goal for this plan. Therefore, no adjustments are required Scenario B: After making regular contributions for the first four months, the subscriber reduces his or her monthly contributions to $50 for the next six months and in the future. Since the subscriber did not resume making $100 monthly contributions within six months of reducing his or her scheduled monthly contributions, the total contribution goal for this plan will be recalculated after the 6 th month of reduced contributions. Revised total contribution goal based on contributions = $10,200 Current Contributions (10) Future Contributions remaining until Dec 31 st of year beneficiary turns 17 equals 190 Four months at $100 $400 Six months at $50 $300 Contributions to date: $ months X $50 = $9,500 68

72 Current contributions + Future contributions = Revised total contribution goal $700 + $9,500 = $10,200 Revised total contribution goal based on sales charge= $7, Sales charge Collected Revised Total Contribution Goal Based on Sales charge Collected Four months at $100 $400 Six months at $50 $300 Contributions to date: $700 $ % = $7, $700 has gone towards sales charge Based on the above values, $10,200 is the higher value, but since this value is higher than the current total contribution goal of $10,000, the total contribution goal does not need to be reduced and there is no need to recalculate sales charge. Scenario C: After making regular contributions for the first four months, the subscriber reduces his or her monthly contributions to $0 for the next six months and in the future. Since the subscriber did not resume making $100 monthly contributions within six months of reducing his or her scheduled monthly contributions, the total contribution goal for this plan will be recalculated after the 6 th month of reduced contributions. Revised total contribution goal based on contributions = $400 Current Contributions (10) Future Contributions remaining until Dec 31 st of year beneficiary turns 17 equals 190 Four months at $100 $400 Six months at $0 $ 0 Contributions to date: $ months X $0 = $0 Current contributions + Future contributions = Revised total contribution goal 69

73 $400 + $0 = $400 Revised total contribution goal based on sales charge= $4,210 Sales charge Collected Revised Total Contribution Goal Based on Sales charge Collected Four months at $100 $400 Six months at $0 $ 0 Contributions to date: $400 $ % = $4, $400 has gone towards sales charge The revised total contribution goal for this plan is $4, since it is the higher of the two figures. The following formula can be used to calculate outstanding sales charge. Recalculating Sales charge Due and Outstanding Fees Remaining Sales charge % X Revised total contribution goal = Revised sales charge due - Sales charge already paid = Outstanding sales charge remaining 9.5% X $4, = $ $ = $0 70

74 Addendum II - Calculating Sales charge Refunds The following examples demonstrate how sales charge refunds are calculated for the Flex First plan. To simplify the explanations, each example is based on the following facts: Monthly contributions of $50 Duration of contributions is 200 months Total contribution goal is $10,000 Sales charge rate is 9.5% of the total contribution goal 100% of sales charge has been collected Example: Sales Charge Refund for Closed Plan or Transferred Out In this example the total contribution goal is $10,000 and the subscriber has paid all contributions. The sales charge paid on the plan equal $950 (9.5% of the total contribution goal). The subscriber has withdrawn $2,000 from the plan for non-post-secondary education purposes. Calculate non-refundable sales charge Non-Refundable Sales Charge Total contributions made to-date X Sales charge % = Non-refundable sales charge $10,000 X 9.5% = $950 Calculate sales charge refund Sales Charge Refund Total sales charge collected - Non-refundable sales charge amount = Sales charge refund amount $950 - $950 = $0 In this example, there would be no refund due if the plan closed, transferred out (or tried to reduce total contribution goal) since the total contributions that are used in the refund calculation for this plan would be $10,000 and not $8,

75 Example: Sales Charge Refund for Reduced Total Contribution Goal Scenario A After making regular contributions for 30 months, the subscriber decides to stop making contributions. The subscriber asks to decrease his or her total contribution goal to equal contributions already made into the plan, which is the minimum goal he or she can select ($50 X 30 months = $1,500). The subscriber has paid all sales charge due of $950 ($10,000 X 9.5% = $950). Calculate new sales charge New Sales Charge Due Revised total contribution goal X Sales charge % = New sales charge due $1,500 X 9.5% = $ Calculate sales charge refund Sales Charge Refund Total sales charge collected - New sales charge due = Sales charge refund amount $950 - $ = $ The refund will be added to the subscriber s net contributions in his or her plan. The sales charge for this plan has effectively now been paid in full with respect to the new total contribution goal. 72

76 Scenario B After making regular contributions for 100 months, the subscriber decides that he or she wants to decrease his or her total contribution goal to $8,000. The minimum total contribution goal the subscriber could have chosen was $5,000, which equals the total amount of contributions made to date. The subscriber has paid all sales charge due of $950 ($10,000 X 9.5% = $950). Calculate new sales charge New Sales Charge Due Revised total contribution goal X Sales charge % = New sales charge due $8,000 X 9.5% = $760 Calculate sales charge refund Sales charge Refund Total sales charge collected - New sales charge due = Sales charge refund amount $950 - $760 = $190 The refund will be added to the subscriber s net contributions in his or her plan. The sales charge for this plan has effectively now been paid in full with respect to the new total contribution goal. 73

77 Addendum III Loyalty Bonus Illustrations The following four examples illustrate how loyalty bonus payments are affected by the contribution amounts, frequency and age of the beneficiary. These examples illustrate a plan with a 9.5% sales charge rate. Furthermore, 216 months represents a newborn enrolling in the plan. Example Total contribution goal Number of planned contributions Number of months remaining until beneficiary receives first EAP Contribution type Deposit amount Accumulated loyalty bonus Subscriber 1 $20, Monthly $100 $1, Subscriber 2 $20, Monthly $200 $1, Subscriber 3 20 $20, Lump sum See below $1, Subscriber 4 $20, Monthly $200 $1, Details of how the loyalty bonus is accumulated for each example are shown on the following pages. 20 Subscriber 3 decides to make lump sum contributions. They will contribute $10,000 when his or her child is born and another $5,000 when his or her child turns five and 10 years of age. 74

78 Subscriber 1 Month Monthly Contributions made during the month Total Contributions Sales charge Total Sales charge Net Contributions 21 Loyalty Bonus Accumulated Loyalty Bonus 1 $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $1, $ $1, $0.00 $0.00 $ $ $2, $0.00 $1, $0.00 $0.00 $ $ $2, $0.00 $1, $ $0.06 $ $ $2, $0.00 $1, $ $0.11 $ $ $2, $0.00 $1, $ $0.17 $ $ $19, $0.00 $1, $17, $9.79 $ $ $19, $0.00 $1, $17, $9.85 $ $ $20, $0.00 $1, $18, $9.90 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, Net contributions in the plan at the beginning of the month and before the monthly contribution was made 75

79 Subscriber 2 Month Monthly Contributions made during the month Total Contributions Sales charge Total Sales charge Net Contributions 22 Loyalty Bonus Accumulated Loyalty Bonus 1 $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $1, $ $1, $0.00 $0.00 $ $ $2, $ $1, $0.00 $0.00 $ $ $2, $0.00 $1, $ $0.06 $ $ $2, $0.00 $1, $ $0.17 $ $ $2, $0.00 $1, $ $0.28 $ $ $19, $0.00 $1, $17, $9.63 $ $ $19, $0.00 $1, $17, $9.74 $ $ $20, $0.00 $1, $17, $9.85 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, Net contributions in the plan at the beginning of the month and before the monthly contribution was made 76

80 Subscriber 3 Subscriber 3 decides to make lump sum contributions. They will contribute $10,000 when his or her child is born and another $5,000 when his or her child turns five and 10 years of age. Month Monthly Contributions made during the month Total Contributions Sales charge Total Sales charge Net Contributions 23 Loyalty Bonus Accumulated Loyalty Bonus 1 $10, $10, $ $ $0.00 $0.00 $ $0.00 $10, $0.00 $ $9, $4.98 $ $0.00 $10, $0.00 $ $9, $4.98 $ $5, $15, $ $1, $9, $4.98 $ $0.00 $15, $0.00 $1, $13, $7.47 $ $0.00 $15, $0.00 $1, $13, $7.47 $ $5, $20, $ $1, $13, $7.47 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, Net contributions in the plan at the beginning of the month and before the monthly contribution was made 77

81 Subscriber 4 Month Monthly Contributions made during the month Total Contributions Sales charge Total Sales charge Net Contributions 24 Loyalty Bonus Accumulated Loyalty Bonus 1 $ $ $ $ $0.00 $0.00 $ $ $ $ $ $0.00 $0.00 $ $ $1, $ $1, $0.00 $0.00 $ $ $2, $ $1, $0.00 $0.00 $ $ $2, $0.00 $1, $ $0.06 $ $ $2, $0.00 $1, $ $0.17 $ $ $2, $0.00 $1, $ $0.28 $ $ $19, $0.00 $1, $17, $9.63 $ $ $19, $0.00 $1, $17, $9.74 $ $ $20, $0.00 $1, $17, $9.85 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $ $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, $0.00 $20, $0.00 $1, $18, $9.96 $1, Net contributions in the plan at the beginning of the month and before the monthly contribution was made 78

82 Family Group Plan What Sets the Group Plan Apart The Group Plan RESP is designed to provide a higher potential payout compared to other RESPs for a beneficiary to use for his or her post-secondary studies. This is achieved by combining the income for all Group Plans where beneficiaries share a common year of eligibility 25. Beneficiaries, who are eligible to receive education assistance payments, will share the income from Group Plans that are closed before the scheduled maturity date 26 and the income from beneficiaries who do not qualify for future education assistance payments. Pooled Income All Group Plans, where beneficiaries share a common year of eligibility, combine the income in each plan into the income pool. Beneficiaries, who qualify for education assistance payments, participate in the disbursement of the pooled income. Beneficiaries, who do not qualify, will leave their income to the benefit of the qualifying beneficiaries. When a plan is closed, the income earned on the contributions will remain with the plan s pooled income which is used to increase the value of the income payments for those beneficiaries who qualify. Participation in the income pool is achieved through the purchase of units. The Unit Concept When a subscriber opens a Group Plan, he or she is purchasing units. A unit is used to measure the share that each beneficiary holds in his or her respective income pool. Every unit is designed to earn approximately the same amount of income by the year in which the beneficiary is expected to start his or her first year of post-secondary studies. The example following illustrates how units work 27. At maturity, each unit will have earned approximately the same income. 25 The second year of post-secondary studies at qualified post-secondary institution and program. 26 The year in which the beneficiary plans to attend his or her first year of post-secondary studies, commonly the year when the beneficiary turns 18 years of age. The maturity date is set at the time of enrolment and can be changed during the life of the plan. 27 The illustration represents the purchase of one unit on a monthly contribution schedule. Education assistance payment (EAP) values are for illustration purposes only and do not reflect accurate payout amounts. 79

83 Maturity Net contributions returned EAP 1 EAP 2 EAP 3 Maturity EAP 1 EAP 2 EAP 3 0 years old - $4.86 unit per month (D-18) $275/unit $275/unit $275/unit 3 years old - $6.24 unit per month (D-16) $275/unit $275/unit $275/unit 6 years old - $11.79 unit per month (D-12) $275/unit $275/unit $275/unit 9 years old - $17.44 unit per month (D-10) $275/unit $275/unit $275/unit The number of units purchased in a Group Plan will depend on how much the subscriber wishes to contribute, how often the subscriber wishes to make contributions, and how many years until the beneficiary begins his or her first year of post-secondary studies. Please refer to Addendum I Calculating Units for an example of how units are calculated. Set Contribution Schedule At the time of enrolment the subscriber is making a commitment to follow a specific contribution schedule for the life of the plan. Any changes to the contribution schedule (contribution amount and/or frequency) may require a principal and or income adjustment. Please refer to Contribution Schedule for additional information. Education Assistance Payments The Group Plan has qualification requirements that have to be met for the beneficiary to receive his or her education assistance payments. The Knowledge First Foundation can supplement education assistance payments issued to beneficiaries. Please refer to Education Assistance Payments for additional information. Who Should Enrol in the Group Plan The Group plan is recommended for a subscriber who can maintain his or her contribution schedule (described later), and whose beneficiary is under 13 years of age and who is likely to attend a postsecondary education program, or programs, in each of four calendar years. 80

84 Advantages & Disadvantages 28 Benefits of the Group Plan Offers higher potential payout compared to other RESPs. Future contributions are insured in case of subscriber death or permanent disability. Knowledge First Foundation can supplement education assistance payments issued to beneficiaries. The subscriber can transfer to the Single Student Plan before his or her Group Plan matures, or before the beneficiary turns 19 years of age, whichever comes first. Education assistance payments (EAPs) are paid to the beneficiary as long as he or she is attending either a full time or part time post-secondary program that would qualify for an EAP under the Income Tax Act (Canada). The beneficiary does not have to show that they successfully completed the prior academic year in order to qualify for further education assistance payments. The beneficiary can take time off from post-secondary studies and remain eligible to receive all education assistance payments. If beneficiary has been disqualified from receiving education assistance payments (EAPs) from the group income pool they may still be eligible to receive EAPs from the government grants and grant income remaining in their plan. The subscriber can replace the beneficiary on the plan. Disadvantages of the Group Plan If the subscriber does not follow the contribution schedule, the units in the plan will be reduced at the plan s maturity date. If a plan is closed before the beneficiary enters his or her first year of post-secondary studies, income earned to date is forfeited to the group income pool to be used by other beneficiaries and grants will have to be repaid to the government. If the beneficiary does not receive all three education assistance payments, their unused income stays in the group income pool to be distributed to qualified beneficiaries associated with that same pool. 28 These points reflect a high level summary of the group plan. Please refer to specific sections for complete product details. 81

85 Income that has been transferred to the beneficiary group income pool that is not used as an education assistance payment cannot be issued to the customer as an accumulated income payment, or transferred to their RRSP. 82

86 Risk Factors The following are risk factors the subscriber needs to consider regarding the Family Group Plan: If the Social Insurance Number for the beneficiary is not provided within 18 months of the day the plan was opened, we will close the plan. If for any reason the Canada Revenue Agency cannot validate the beneficiary s Social Insurance Number, we cannot register the plan as an RESP and will have to close the plan. If the plan is closed after the 60 th day from when it was opened, the subscriber will not be reimbursed for fees paid to date, and he or she can lose the income on the plan. If the beneficiary does not attend a recognized post-secondary institute and program in four calendar years, some or all of the income on the plan could be lost and the government grants will have to be repaid to the applicable government. If contributions are withdrawn for non-post-secondary education purposes, some of the government grants will have to be returned to the applicable government. If contributions are higher than the $50,000 limit allowed by the Tax Act, the subscriber may have to pay a penalty tax. We cannot guarantee that the beneficiary will qualify for education assistance payments, or how much the education assistance payments will be. The beneficiary must contact us by November 1 st of each year following plan maturity to receive education assistance payments; otherwise, the beneficiary will not qualify for future education assistance payments. The money in our Group Plan is invested conservatively in Canadian fixed income securities and certain equities. However, there is some investment risk involved in investing in securities. 83

87 Subscribers Who Can Be a Subscriber? Anyone who is a Canadian resident and has a Social Insurance Number (SIN) may subscribe to the Group Plan. A company or trust may not act as subscriber to the plan. Also, securities regulations require that all enrolment applications be signed in the province where the subscribers reside and where the sales representative holds a license. RESPs allow the designation of a joint subscriber (defined as a spouse or common-law partner). The subscriber or joint subscriber can contribute to several Registered Education Savings Plans for the same beneficiary. Is It Possible to Change a Subscriber? Change while subscriber is alive: At least one original subscriber must remain on the plan, unless an individual has acquired the subscriber's rights under the RESP as a result of a decree, order or judgment or under a written agreement relating to the division or property following a breakdown of marriage or common-law partnership. Change upon subscriber's death: Following the death of a subscriber, the plan may continue in the estate of the individual, or a new subscriber may be appointed. The subscriber s last will and testament may describe who will acquire the deceased individual s rights as a subscriber, or the executor may choose to assign a replacement subscriber. In the case where there is no Will, the subscriber s family may apply for a court appointed administrator, who is authorized to provide instructions regarding the replacement of the original subscriber. In cases where there is insurance on the plan and the deceased subscriber is removed, the insurance coverage will also cease and the deposits will need to be made by the new subscriber. Add a joint subscriber if one was not named when plan was opened: Only the spouse (married, common law or same sex) can be added as a joint subscriber. 84

88 Beneficiary Who can be a Beneficiary? As required by federal government regulations, the beneficiary must be a Canadian resident and must have a Social Insurance Number in order for the plan to be registered and be eligible for government grants. It is the subscriber s responsibility to submit a valid Social Insurance Number to us. Subscribers should contact Employment and Social Development (Canada) to request a Social Insurance Number for his or her child. A child may be the beneficiary of more than one RESP. For example, a parent and grandparent may both open separate RESPs for the same child. If the subscriber is someone other than the beneficiary s custodial parents, Knowledge First Financial is required to send a letter to the custodial parent(s) in order to let them know that a plan has been opened in their child s name. This is to help avoid over contribution situations. See the Contributions section for more information regarding over contributions. Children under the age of 13 can be enrolled in the Family Group Plan. What if the Beneficiary does not have a Social Insurance Number? The subscriber can open a non-registered plan for the beneficiary. We must receive a valid Social Insurance Number within 18 months from the day the plan is opened or the plan will be closed. Grantonly plans require the beneficiary to have a valid Social Insurance Number when the plan is opened. Social Insurance Number applications can be downloaded from the Employment and Social Development of Canada website How are Contributions Handled for Non-Registered Plans? All contributions made into the plan before it is registered as an RESP will be placed into a non-registered holding account called an holding account. The holding account is not eligible for tax benefits or grants. Sales charge and other fees are deducted from this account. Net contributions in the non-registered holding account earn income. Once we receive the beneficiary s Social Insurance Number, all contributions and income earned on contributions will be transferred to the RESP savings account 29. The total amount of transferred contributions made by the subscriber plus any income earned will then be considered eligible to receive government grants. Any income earned in the non-registered holding account will be included in the subscriber s taxable income in the year it was earned. 29 The fees that were deducted from the contributions will be credited back to the RESP before the transfer, and then deducted again after the transfer has occurred. 85

89 If the plan is closed before it is registered, the net contributions plus income earned in the holding account will be returned to the subscriber. Is it Possible to Change a Beneficiary? The subscriber can change the beneficiary in a Group Plan any time before the plan matures. The new beneficiary must be under 19 years of age. The subscriber is also required to provide a valid Social Insurance Number and proof that the new beneficiary is a Canadian resident. In the event of a beneficiary s death, another beneficiary may be substituted within 90 days of the death. This is on the conditions that the death occurred before September 1 of the year following plan maturity and that the new beneficiary is not already qualified to receive Education Assistance Payments under a Family Group Plan. If the new child is not the same age as the previous beneficiary, the Plan s maturity date would need to be changed. This would result in a change in the deposit amount and number of deposits to be made to the plan. IF the new child is older than the original child, there will be an income adjustment to be paid. How are Previous Contributions Handled if the Beneficiary is Changed? When a beneficiary under the Group Plan is replaced, contributions made for the former beneficiary will be considered to have been made for the new beneficiary. Contributions made on behalf of the new beneficiary as a result of a change of beneficiary will not create an over contribution, with respect to the maximum RESP contribution lifetime limit of $50,000 for the new beneficiary, when one of these two criteria is met: 1. The new beneficiary is the brother or sister of the former beneficiary and is under 21 years of age, or: 2. The two beneficiaries (former and new) are related to the subscriber by blood or adoption and neither beneficiary has reached 21 years of age. However, if the new beneficiary does not meet the above two criteria and already has an RESP, the previous contributions must be added and considered in the calculation of eligible future contributions for the new beneficiary's RESP. The additional contribution history may create an over contribution situation for the new beneficiary and result in a penalty tax for the subscriber. How are Previous Grants Handled if the Beneficiary is Changed? To keep any Canada Education Savings Grants (CESG), Saskatchewan Advantage Grant for Education (SAGES) or Quebec Education Savings Incentive (QESI) grants paid into the Group Plan, one of the same two criteria outlined in the section above must be met. Since the Canada Learning Bond (CLB) is not transferrable between different beneficiaries, it will have to be refunded to the government when the beneficiary changes. 86

90 What Happens if the Beneficiary is Disabled or Dies? If the beneficiary becomes disabled, and the disability prevents the beneficiary from pursuing postsecondary studies, or the beneficiary dies, the subscriber has the option of: 1. replacing the beneficiary with a new beneficiary, or 2. transferring the plan to a Single Student Plan. In this case the income earned on contributions and grants can be withdrawn by the customer as an accumulated income payment or transferred to their RRSP If it is after the maturity date of the plan, we will reimburse the subscriber an amount equal to the education assistance payments that would have been paid to the beneficiary from the group income pool, plus any sales charge paid, if the beneficiary will not attend eligible studies and will not qualify for education assistance payments under the group plan as a result of a disability or death, and a plan transfer or switch of beneficiary has not been exercised The disability must be one that will permanently prevent the beneficiary from pursuing eligible studies under the group plan, as certified by a medical doctor. A death certificate must be provided in the event of death of beneficiary. 30 In the case of disability, the accumulated income payment rules can be waived by the ministry of Employment and Social Development Canada. 87

91 Contributions About Contributions The subscriber can make one-time, monthly or annual contributions, following the contribution schedule for the Group Plan. Contributions must be at least: $9.90 per month, or $110 per year, or a lump sum of $449. Contributions correspond to units in the plan. The number of units in the plan depends on how much is contributed, how often contributions are made, and how many years until the beneficiary starts college or university. The number of units in the plan is the beneficiary s share of the beneficiary group income pool with which he or she beneficiary is associated. The more units in the plan, the higher the beneficiary s EAPs will be. The contribution schedule shows the contribution amount per unit. The contribution amount depends on the beneficiary group and whether the subscriber will make a one-time contribution to the plan or make periodic monthly or annual contributions. The contribution schedule has been designed so that regardless of the age of the beneficiary at enrolment, the frequency of contribution, or the amount of the contribution, each unit will earn an approximately equal amount of income to put into their beneficiary group s income pool. The sales charge for the plan is calculated based on how many units the plan has. The more units in the plan, the higher the sales charge will be. The subscriber can change the contribution option, or change the number of units, at any time but we may have to make an income adjustment to make sure that, on the plan s maturity date, the income per unit in the plan is the same as the income per unit in the other plans in that beneficiary group. Any change to contribution amounts or frequency will impact the number of units in the plan. This may result in an overpayment, or the subscriber having to contribute additional funds. Contributions can be made into the Group Plan up to December 31 st of the 21 st year following the year in which the plan was opened. What are the Minimum Contribution Limits? Contribution Type Minimum Monthly $9.90 annually $110 lump sum $449 88

92 What are the Maximum Contribution Limits? The maximum combined total of $50,000 per beneficiary can be contributed towards all RESPs that are held on his or her behalf. What are the Implications of Exceeding the $50,000 Contribution Limit? The obligation to act in the event of an RESP over-contribution rests with the subscriber. The subscriber will get a notification from the Canada Revenue Agency (CRA) indicating that he or she has overcontributed for a specific beneficiary. The subscriber has a choice at this point where he or she can either: 3. Withdraw the over-contribution amount from the beneficiary s plan and bring the RESP contribution total down to $50,000, or 4. The subscriber can do nothing, in which case he or she could be subject to a tax penalty. If there are multiple RESP plans spread out over more than one RESP promoter, the subscriber and the government are the only ones who know that an over-contribution exists for a particular beneficiary. The subscriber can contact the chosen RESP promoter and make arrangements to withdraw the appropriate amount of contributions from his or her RESP. The subscriber should advise the promoter that he or she is withdrawing to fix an over-contribution situation, so that the Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings and Quebec Education Savings Incentive, if any, is not affected. In these cases, the government will provide relief from the rule that states when contributions are withdrawn from an RESP for non-educational purposes, the corresponding grant must be returned. If the promoter does not know this is an over-contribution fix, then the promoter may process the withdrawal as a standard non-post-secondary education withdrawal of contributions, which would result in the grant being returned. What are the Tax Consequences for Excessive Contributions? A 1% monthly tax penalty applies if the combined contributions made to all RESPs on behalf of a beneficiary exceed the total $50,000 limit set by the federal government. Tax penalties are payable by each subscriber on his or her share of the excess contributions that are not withdrawn by the end of the month. The tax penalties payable by each subscriber must be paid to the Canada Revenue Agency within 90 days following the end of the year in which the excess contributions were made. The subscriber must complete the appropriate income tax form as stipulated by the Canada Revenue Agency. 89

93 How are Contributions Made? Contributions can be made by cheque or by pre-authorized deposit. Monthly deposits must be by preauthorized deposit. We do not accept cash or credit cards. We will accept funds transferred from another RESP promoter through a plan transfer. The subscriber can make pre-authorized deposits and payments by cheque for plan contributions. Making payments by cheque for monthly contributions is not accepted. All pre-authorized deposits automatically stop once the plan reaches the end of the set contribution schedule. Contribution Type Pre-authorized deposit Cheque One-time Monthly Annual Can the Subscriber Change the Contribution Amount and Frequency? A subscriber can change the contribution amount and frequency at any time, up to 10 business days before the next pre-authorized deposit date. The changes are subject to the maximum and minimum limits and contribution schedule changes may be subject to income adjustments. Also, each plan can only have one regular contribution frequency (monthly, annual) at any one time. Increasing Contributions The subscriber can increase contributions by purchasing additional units. This will result in higher monthly or annual contribution amounts and will require a principal and income adjustment. Please refer to Addendum I, Increasing Contributions Scenarios for examples. Reducing Contributions A subscriber may reduce his or her monthly or annual contributions, as long as he or she continues to contribute a minimum of $9.90 per month, or $110 per year. The reduction in contributions will result in discontinuing units (or partial units). We only return the net contributions relating to discontinued units when requested by the subscriber. The sales charge related to the discontinued units will be kept as a future credit should the subscriber choose to reactivate the reduced units. Sales charge credits for reduced units will continue to stay in the plan for two years from the date the units were reduced, or until the beneficiary turns 14 years of age, whichever comes first. The income will remain in the plan until the year of maturity, at which time it is transferred to the beneficiary group income pool. The Canada Education Savings Grant, Saskatchewan Advantage Grant 90

94 for Education Savings and Quebec Education Savings Incentive relating to the reduced contributions will remain in the plan. Please refer to Addendum II, Reducing Contributions Scenarios for examples. Reactivating Discontinued Units The subscriber may reactivate discontinued units within two years from the day the units were discontinued. If the subscriber chooses to reactivate a portion of his or her discontinued units, sales charge credits will be applied to only the units being reactivated. The subscriber is required to make up missed contributions and pay an income adjustment from the time the units were discontinued 31. A lump sum deposits needs to equal: contributions returned to the subscriber when he or she discontinued the units, contributions the subscriber missed that relate to the discontinued units, and income that would have accumulated on these contributions. Sales charge credits for units not reactivated will continue to stay in the plan for two years from the date the units were discontinued, or until the beneficiary turns 14 years of age, whichever comes first. The subscriber will forfeit the sales charge on units that were not reactivated after two years from the date the units were discontinued, or once the beneficiary turns 14 years of age, whichever comes first. Please refer to Addendum III, Reactivating Discontinued Units Scenarios for examples. Is it possible to reduce contributions without discontinuing units? No. The Group Plan design is based on a set contribution schedule that will earn a like amount of income per unit by the date of maturity. If the subscriber reduces the contribution amount, the units in the plan will also be reduced. Is it possible to change the contribution frequency? The subscriber can change his or her contribution frequency at any time. This will result in a change to the contribution schedule. The most common change to the contribution frequency is from the monthly or yearly contribution frequency to a one-time or paid-up contribution. Once a plan is paid-up, further contributions are not required. What happens if a Subscriber Misses a Scheduled Contribution? The subscriber is required to make up missed contributions and any income adjustments before his or her plan is scheduled to mature, or we will reduce the number units in the plan upon plan maturity. 31 The sum of the lump sum deposit to cover missed contributions and income, plus the contributions expected under the current contribution schedule cannot exceed a lifetime contribution limit of $50,

95 If the sales charge is paid in full plus a minimum plan balance of $350 (not including government grants or income earned on government grants), the subscriber can miss contributions specified under the contribution schedule. In order to keep the same number of units they will have to make missed contributions up later. The subscriber will also have to make up the income that would have been accumulated if they had made their contributions as scheduled. Can the Subscriber Stop Making Contributions? The subscriber can stop making contributions at any time provided the plan s balance is a minimum of $350 (excluding government grants and any income earned on government grants) and the sales charge is paid in full. When the subscriber stops making contributions and the plan s balance is $350 or less, or the sales charge is not paid in full, the plan will be discontinued. Please refer to Discontinuing a Group Plan for additional information. If the subscriber temporarily stops making contributions for six months or more the plan s insurance coverage will be suspended. Once they have started contributing regularly again, the insurance coverage will resume. Note that if they qualify for the Additional Canada Education Savings Grant (ACESG), they can t carry forward the ACESG the plan didn t receive while they stopped making contributions. Options for Missed Deposits In order to keep the current number of units in the group plan the subscriber must make up these missed contributions and income before the plan s maturity date. They will need to make a lump sum deposit equal to the contributions missed and the income that would have accumulated on them. The make up deposit, plus any other contributions expected under the current contribution schedule, cannot exceed the lifetime contribution limit of $50,000. If making up the full amount of the lump sum deposit is onerous the subscriber has the option of reducing units at the time they are making up the missed contributions which will reduce the amount of the lump sum deposit. They can reduce the amount they contribute to the plan at any time by discontinuing units or partial units, as long they continue to make contributions of at least $9.90 per month or $110 per year. Reducing units in the plan will reduce that beneficiary s share of their group income pool and thereby reduce the amount of education assistance payments available to the beneficiary. If the subscriber has missed deposits and they do not, before the plan s maturity date, either: make up the missed contributions and income that would have accumulated on missed contributions (either with the same number of units or reduced units), or transfer the plan assets to the Single Student Plan, we will automatically reduce the number of units in the plan just prior to the plan s maturity date. The units will be reduced as appropriate to ensure that the income accumulated per unit in that plan is equivalent to the average income accumulated per unit on contributions made under other group plans that have the same year of eligibility as that plan. The beneficiary will then be eligible for education assistance payments based on the reduced number of units. 92

96 Can the Subscriber Open a Group Plan Without Making Contributions? No. A subscriber cannot open a grant only Group Plan. 93

97 Group Plan Contribution Schedule When opening a Group Plan, a sales representative will help the subscriber select a contribution schedule that best suits his or her needs. The contribution schedule will correspond to the number of units, the payment frequency and age of the beneficiary when opening the Group Plan. The contract the subscriber has with Knowledge First indicates that he or she will complete the contribution schedule, thereby generating approximately the same amount of income, per unit, by the plan's maturity date, as all of the other units having the same eligibility year. The Knowledge First Financial Plans' actuaries have designed the contribution schedule to allow this to happen. The letter of the deposit code indicates the deposit frequency (D=monthly, B=annual, F=onetime, etc.). The numerals following the letter represent the number of years from the enrolment year until the first year of post-secondary education. How to use the contribution schedule table For example, let s assume the beneficiary is a newborn. If the subscriber wants to make monthly contributions for the full term of the contribution schedule (17.3 years), they will contribute $4.86 each month for each unit they buy. They would make 208 contributions over the life of the plan, for a total investment of $1, per unit. 94

98 Plan Transfers Transferring Funds from another RESP Promoter to the Group Plan It is possible to transfer RESP funds from another promoter to the Group Plan. The beneficiary transferring in from the other promoter must be under the age of 13, and the other plan must have never made any accumulated income payments to the subscriber. There is no relationship requirement between the subscriber and beneficiary. The amounts transferred from another promoter will be set-up as a one-time deposit and will be subject to applicable sales charge. The RESP amounts transferred from another promoter are not considered new contributions and, consequently, are not eligible for any additional Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings or the Quebec Education Saving Incentive. It is possible to make partial or total transfers from another RESP. For every transfer, the transferring plan must provide the amounts of contributions, grants and income that have accumulated in the plan. Plan Transfers from the Group Plan to another RESP Promoter The subscriber can request to transfer his or her Group Plan RESP to another RESP promoter. To complete the transfer at least one subscriber has to be the same on both RESPs. The transfer must meet the Employment and Social Development Canada transfer eligibility rules and only full transfers are allowed. No funds will remain in the plan after the transfer is completed. Net contributions, grants, and grant income are transferrable. If the receiving promoter does not accept all of the grants that are currently in the Group Plan, then we will return non-acceptable grant monies to the appropriate government (federal or provincial). Income earned on contributions to the Group Plan will remain in the Group Plan and will be transferred to the beneficiary group income pool for distribution to other qualified students in that pool. The sales charge paid to date is not refundable. The Plan will be closed and de-registered once the plan transfer has been completed and cannot be reopened. Plan Transfers from a Single Student Plan or Flex First Plan to a Group Plan The beneficiary transferring in from the other RESP must be under 13 years of age, and there is no relationship requirement between the subscriber and beneficiary. To complete the transfer at least one subscriber has to be the same on both plans. If there is more than one subscriber on the existing Group Plan, both subscribers are required to authorize the transfer. The transferring RESP must not have made an accumulated income payment to the subscriber. 95

99 The RESP amounts transferred from another promoter are not considered new contributions and consequently, are not eligible for any additional Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings, or the Quebec Education Saving Incentive. The amounts transferred from the Single Student Plan or the Flex First Plan will be set-up as a one-time deposit and are subject to sales charges 32. Any sales charge paid on the original Plan will be credited to the Group Plan. Plan Transfers from a Group Plan to a Single Student Plan or Flex First Plan Subscribers can transfer from the Group Plan to the Single Student Plan or Flex First. To complete the transfer at least one subscriber has to be the same on both plans. If there is more than one subscriber on the existing Group Plan, both subscribers are required to authorize the transfer. The subscriber must request the transfer before July 31 st of the specified year of maturity on the original Group Plan, or any time before the original beneficiary turns 19 years of age, whichever comes first. The net principal, income earned on contributions, grant, and grant income will be transferred to the Single Student Plan. If the transfer is to Flex First Plan, income earned on contributions will not be included in the transfer. Any sales charge paid on the original Group Plan will be credited to the transferred plan. Impact on Government Grants of a Beneficiary Change During a Plan Transfer When a beneficiary is replaced during a plan transfer, government grants paid to the original beneficiary will be returned to the appropriate government unless: the receiving RESP meets the requirements of the Income Tax Act and the regulations respecting the government grants and permits administration of the grants, and either the beneficiary in the new plan is under 21 years old (at the time of the transfer) and has at least one parent in common with the beneficiary in the original plan, or the same beneficiary is in both plans. The Canada Learning Bond is not transferrable between beneficiaries. If the plan transfer involves a change of beneficiary, the Canada Learning Bond must be returned to the government of Canada. 32 Once the RESP transfer is complete, the subscriber may request to change the contribution schedule from a onetime to a monthly or annual contribution schedule. 96

100 Withdrawing Contributions Non-Post-secondary Education Contribution Withdrawals A subscriber can withdraw all or part of his or her net contributions at any time during the life of the plan without providing proof of enrolment into a qualifying post-secondary educational program. This is known as a non-post-secondary education withdrawal. If the subscriber makes a non-post-secondary education withdrawal (before or after maturity), the Canada Education Savings Grant, the Saskatchewan Advantage Grant for Education Savings and the Quebec Education Savings Incentive will be returned to the appropriate government. Grant income will remain in the plan until it is paid out as part of an education assistance payment, withdrawn as an accumulated income payment, or donated to an educational institution of our choosing. Net contributions are not taxed by the Canada Revenue Agency when returned to the subscriber or the beneficiary. Can the subscriber withdraw his or her contributions for non-post-secondary education purposes before plan maturity? Yes. During the initial 60-day free-look period, a subscriber can withdraw all of his or her contributions, including all fees paid to date. After 60 days, the subscriber can withdraw his or her net contributions (contributions minus fees). Some grants collected in the plan must be returned to the appropriate government in proportion to the amount of the withdrawal. Contributions are withdrawn in the following order: 1. Assisted contributions: contributions that were matched by government grants (matching grants returned are to government). This will result in a loss of grant room. 2. Unassisted contributions: contributions made on or after January 1, 1998 that were not matched by the government though government grants. 3. Pre-1998 unassisted contributions: contributions made on or before December 31, When subscribers withdraw contributions from an RESP, the withdrawn amount will be counted as an RESP contribution when determining whether the $50,000 RESP contribution limit has been exceeded, even though the contributions were withdrawn. 97

101 Post-Secondary Education Contribution Withdrawals The year of plan maturity is the year in which the beneficiary intends to enter his or her first year of postsecondary education. This is determined by the subscriber at the time of enrolment and is generally the year the beneficiary turns 18 years of age. Net contributions are returned to the client or the student whether or not the student continues education beyond high school. All Family Group Plans are scheduled to mature on July 31 st in the chosen year of maturity. A subscriber is required to complete a maturity application form to withdraw net contributions for postsecondary education purposes. The maturity application form is mailed to the subscriber six months before maturity. The lump sum payment can be returned to either the subscriber or the beneficiary. Net contributions are not taxed by the Canada Revenue Agency when returned to the subscriber or the beneficiary. Can a subscriber request to withdraw his or her post-secondary education contribution before the scheduled maturity date? A subscriber can withdraw his or her net contributions before the scheduled maturity date by providing proof of the beneficiary s enrolment at a post-secondary institution that qualifies for an RESP under the Income Tax Act. Because of the pooling nature of the Group Plan, all Group Plans scheduled to mature in the same calendar year must earn the same income per unit. When a subscriber withdraws his or her net contributions before the scheduled maturity year, the plan will require an income adjustment to make up for income that would have been earned if the plan matured in the scheduled maturity year. When the subscriber withdraws his or her net contributions before the scheduled maturity date: a. We will convert the portion of the plan s net contributions to income, that equals the income each unit in the plan would have earned originally scheduled maturity date and the new, earlier maturity, or The subscriber may reduce the number of units in the plan to match the income each unit has earned to date. Can a subscriber request to withdraw his or her post-secondary education contribution after the scheduled maturity date? A subscriber can request to withdraw his or her post-secondary education contribution after the scheduled maturity date if the beneficiary is not planning to attend post-secondary studies in the scheduled year of maturity. This will allow the subscriber to retain the grant accumulated in the plan. A request to withdraw post-secondary education contributions can be delayed up to the calendar year in which the beneficiary turns 21 years of age (before age 22). 98

102 What happens if the subscriber does not submit a request to withdraw his or her post-secondary education contribution? If the subscriber s Group Plan has collected government grants, we will keep the subscriber s contributions for two calendar years past the scheduled maturity date. We will make several attempts to contact the subscriber. If the subscriber does not respond within two years of the scheduled maturity date, we will mail the subscriber his or her net contributions as a non-post-secondary education contribution withdrawal and return the CESG, SAGES and QESI in the plan to the appropriate government. If the subscriber s group plan is not collecting government grants, we will mail the subscriber his or her net contributions within 60 days of the maturity date as long as it has cleared the banking system. Un-cashed cheques If we don t have an address to return a client s contribution cheque to, we will hold the cheque for three years from the client s maturity date. After that, the client will forfeit their money. If a client or their student does not cash a cheque within three years from the issue date, or the date we close their plan (whichever is earlier), we will transfer the funds to the Foundation s income account. In both cases, grants would be returned to the appropriate government. 99

103 Education Assistance Payments An education assistance payment is any payment out of an RESP (not including contributions) to a beneficiary to help pay the cost of post-secondary studies including tuition, lab fees, lodging, books, school supplies, transportation, food, etc. Under the Group Plan the beneficiary is eligible for up to three education assistance payments paid over three calendar years starting in his or her year of eligibility. Payments are received by the beneficiary in the 2 nd, 3 rd, and 4 th calendar years following the plan s year of maturity. Education assistance payments are not issued for the 1 st year of post-secondary studies. The return of the principal contributions accumulated in the subscriber s plan is meant to assist with the costs of 1 st year. Education assistance payments are paid directly to the beneficiary either by direct deposit, or cheque. For a beneficiary to receive the education assistance payments in his or her Group Plan, he or she must be enrolled in a program that would qualify for an education assistance payment under the Income Tax Act at a recognized post-secondary institution. What are the Conditions to Receive Education Assistance Payments? In the Group Plan the subscriber or beneficiary must contact us by November 1 of each year, starting with the year of eligibility, to tell us whether we should: o o o change the year of eligibility, pay an EAP (the beneficiary will need to provide proof that he or she has been accepted and is enrolled in eligible studies), or defer an EAP. If we do not hear from the beneficiary by November 1 st in any of these years, he or she will no longer be eligible to receive future education assistance payments. Knowledge First Foundation has an appeals process for any beneficiary who believes he or she was disqualified from receiving education assistance payments from the plan due to extenuating circumstances. The beneficiary should contact customer service in this case to discuss a reinstatement. The following are the conditions to receive education assistance payments from the Group Plan: The beneficiary must be attending post-secondary studies that would qualify for an EAP under the Income Tax Act; Proof of the beneficiary's enrolment in a qualifying post-secondary education program must be included with the request for payment; The beneficiary must be a Canadian resident to receive the grant portion of an education assistance payment; The beneficiary must be a resident of Quebec to qualify for the Quebec Education Savings Incentive portion of an education assistance payment; Students who are not Canadian residents when they receive EAPs may have to pay either Canadian income tax or non-resident withholding tax on the payments. 100

104 How are EAPs Paid and Taxed? Education assistance payments are made directly to the beneficiary, generally in two installments, in September and December for each year the beneficiary qualifies for his or her post education assistance payment. The beneficiary can apply for an advance on their education assistance payment at any time prior to November to coincide with their post-secondary studies. If the beneficiary does not apply for an advance payment, he or she can apply to receive the full education assistance payment for the year in December. The education assistance payment cannot exceed $5,000 unless the beneficiary has completed at least 13 consecutive weeks in a program in the 12-month period before the payment is made. The education assistance payment cannot exceed $2,500 if the beneficiary is enrolled in a specified program that includes at least 12 hours per month of instruction time and where the beneficiary is at least 16 years old. If the beneficiary s expenses exceed $5,000 in the first 13 weeks, he or she should contact us and we will apply to the Minister of Employment and Social Development Canada to have the limit increased. The education assistance payment is taxable income and the beneficiary must include this income on his or her tax return for the year in which the income was received. 101

105 What makes up an Education Assistance Payment? Education assistance payments for the Group Plan are calculated per unit. The income from all group plans that matured in the same calendar year will be transferred from the savings account into the foundation education assistance payment (FEAP) account. Any income from closed plans with the same maturity year will also be transferred into the foundation education assistance payment (FEAP) account. The following illustrates each of the components: 1. Income from subscriber s plan 2. Forfeited income from non-qualified plans 3. Grant principal 4. Grant income 5. Income Account top-up 6. Foundation supplement from available excess revenue 102

106 Income Description 1 Income from the subscriber s plan Income earned on contributions for all plans that share the same year of eligibility. 2 Forfeited income Income from plans in the same income pool that were closed before maturity, or whose beneficiaries no longer qualify to receive education assistance payments. Top-up 3 Income Account top-up Supplemental payment from the Foundation s income account. 4 Foundation top-up from excess revenue Supplemental payment from the Foundations excess revenue after operating expenses. Government Grants 5 Grant principal Government grants paid into the individual subscribers plan. 6 Grant income Income earned on government grants paid into the individual subscribers plan. How are Education Assistance Payments Calculated? When the subscriber s plan reaches its scheduled maturity date, we transfer the income 33 to the Foundation education assistance payment (FEAP) account, along with the income from all Group Plans with the same maturity date. We also transfer the income from any Group Plan closed before reaching its scheduled maturity date (with the same year of eligibility) to the same Foundation education assistance payment account. Please refer to the Prospectus for additional information. The following example will be used to help illustrate how education assistance payments are calculated. 1. Maturity date: Year of eligibility:

107 3. Income in the Foundation education assistance payment account = $750, Units in the Foundation education assistance payment account = 1, Year of maturity, $750,000 income in pool and 1,000 units in pool Plan 1 20 units Plan 3 38 units Plan 2 2 units Foundation education assistance payment account Plan 4 7 units Plan 5 24 units Income from a closed plan In the plan s year of eligibility (year following maturity), the Foundation education assistance payment account is divided into three equal parts 34. The following example illustrates how the income is divided into three equal portions. In the year of eligibility (2016), $750,000 income in pool and 1,000 units in pool 34 The Knowledge First Foundation determines the Group Plan payment per unit for each year of eligibility FEAP pool in December using the calculations and explanations provided in this section. 104

108 $250,000 1st EAP payment 2nd EAP payment $250,000 3rd EAP payment $250,000 To calculate the EAP from the FEAP account, the amount of income available in the Foundation education assistance payment account for each education assistance payment is divided by the total number of units for qualified beneficiaries in the pool. In this example, 962 of the 1,000 units qualified for an education assistance payment. Income available Total number of units 35 = Per unit education assistance payment $250, = $ per unit Money from Group Plan Attrition Value Any income from a plan where the beneficiary no longer qualifies for future education assistance payments will remain in the Foundation education assistance payment account and will be shared amongst qualified beneficiaries. This is called the Attrition Value. Using the example above, of the 1,000 qualifying units, 76 units were from beneficiaries who no longer qualified for future education assistance payments, leaving 926 units qualified for a payment. The income left by the 76 units is divided equally amongst the qualified beneficiaries, which equals forfeited income per unit. per unit value x number of forfeited units remaining units = Forfeited income per unit $ x 76 = $20, = $22.16 per unit 35 For qualified beneficiaries for that specific year of eligibility. 105

109 Forfeited income tends to increase for the second and third education assistance payments for qualified beneficiaries since a number of beneficiaries (for various reasons) do not continue with their postsecondary studies and do not qualify for future education assistance payments. The Income Account top-up The amount paid from Knowledge First Foundation s income account per unit is at the discretion of the Foundation and may vary from year to year. There is no fixed formula to calculate this discretionary payment. However, the income account top-up may be equal to all, or part of the sales charge paid by the subscriber per unit. Please refer to Income Accounts for additional information. Foundation Available Excess Revenue top-up The amount paid from Knowledge First Foundation s available excess revenue per unit is at the discretion of Knowledge First Foundation and may vary from year to year. There is no fixed formula to calculate this discretionary payment. However, in the past few years Knowledge First Foundation has paid $15 per unit in excess revenue top-ups. Calculating the grant part of an EAP Grant principal is calculated specifically for each plan, since grant principal is not shared amongst eligible beneficiaries. The total grant principal (for all government grants, both federal and provincial) in the plan is divided by three to calculate the grant principal paid for each education assistance payment. The following example illustrates the grant principal paid as part of each year s education assistance payment using the example shown earlier in this section ($4,064). Grant principal 3 = Grant principal paid as part of education assistance payment $4,064 3 = $1, per education assistance payment Calculating grant income for an EAP Grant income is calculated specifically for each plan since grant income is not shared amongst eligible beneficiaries. The total grant income (for all government grants, both federal and provincial) in the plan is divided by three to calculate the grant income paid for each education assistance payment. The following example illustrates the grant income paid as part of each year s education assistance payment using the shown earlier in this section ($4,064). 106

110 Grant Income 3 = Grant income paid as part of education assistance payment $2,131 3 = $ per education assistance payment Calculating total education assistance payment To calculate each education assistance payment, multiply the income and top-up amounts value per unit by the number of units in the subscriber s plan. Then add the grant principal and grant income available per education assistance payment. The example that follows illustrates one education assistance payment using the examples described above. Income Per unit Total 1 Income from the subscriber s plan $ $4, Forfeited income $22.16 $ Top-up 3 Income account top-up $38 $570 4 Excess revenue top-up $15 $225 Government Grants 5 Grant principal n/a $1, Grant income n/a $ Refer to addendum I for further details. Total education assistance payment (one payment) $7, Will a beneficiary receive an education assistance payment if he or she repeats an academic year? Yes a beneficiary will receive an education assistance payment should they be repeating an academic year. Will a beneficiary lose his or her education assistance payment if he or she takes a year off? A beneficiary may take time away from attending post-secondary studies before starting his or her studies or between school years and remain eligible for all three education assistance payments. However, the beneficiary must receive his or her first education assistance payment before his or her 22 nd birthday. 107

111 When the beneficiary is ready to resume his or her studies, the beneficiary must provide proof that he or she attending eligible studies. Once the first education assistance payment has been received, only one year can be taken off between subsequent EAPs. 108

112 Discretionary Foundation Payments to Students (Foundation Top-ups) Beneficiaries who qualify for EAPs may receive a discretionary payment supplement from these two sources: a share of the Foundation s Income Account, including an amount equivalent to up to one-third of the sales charge paid, with each EAP; and a share in the Foundation s excess revenues. The amount of money available from the Income Account and the excess revenues of the Foundation will vary each year and we cannot guarantee money will be available for these supplements when the beneficiary is receiving his or her EAPs from the plan. Whether the Foundation provides these supplements, and how much they might be is up to the Foundation each year. As a not for profit corporation, it is the Foundation s policy to share available excess revenue with beneficiaries receiving education assistance payments. These payments are called Discretionary Foundation Scholarship Payments (also known as top- ups or EAP supplements ). Since 2004, the Foundation has used a portion of its available excess revenues to issue top-ups to beneficiaries receiving education assistance payments from the Family Group Plan. A beneficiary must attend a qualifying post-secondary education program, and receive an education assistance payment to receive the supplement. Since the amount of excess revenue in any year cannot be predicted, these are discretionary payments and are not guaranteed. A beneficiary should not count on receiving a discretionary payment. The Foundation decides if it will make a payment in any year and how much the payment will be. If the Foundation makes a payment, it may be less than what was paid in the previous year. A beneficiary may also receive less than what the Foundation pays beneficiaries in other types of plans sponsored by the Foundation. 109

113 Eligible Studies - Institutions and Programs What are Eligible Post-Secondary Education Institutions? The following types of institutions are considered by the federal government as being recognized postsecondary educational institutions: A university, college (CEGEP) or any other educational institution located in Canada, including some technical and professional training schools, which have been certified by the Lieutenant Governor-in-Council of a province as a certified educational institution in application of the Canada Student Loans Act, or recognized by the Minister of Education of Quebec for purposes of that province's Student Loans and Scholarships Act; An educational institution in Canada recognized by the Ministry of Employment and Social Development Canada that offers courses aimed at providing or enhancing the skills required to exercise a profession; A university, college or other educational institution outside of Canada that offers post-secondary level courses. What is an Eligible Post-Secondary Education Program? A recognized post-secondary education program is any part-time or full-time program that meets the criteria listed below. In Canada o be at least 3 consecutive weeks in length, and o require at least 10 hours per week of instruction time, or o require at least 12 hours per month of instruction time, provided the student is over 16 years old. Outside of Canada o be at least 3 consecutive weeks in length of full time studies at a university, or o be at least 13 consecutive weeks in length at a university, college or other educational institution, and o be at an institution and program that would qualify for an EAP under the Tax Act. 110

114 When the Beneficiary Does Not Pursue Post-secondary Studies The following are the four options available to a subscriber with a Group Plan: Name another Beneficiary The subscriber may name another beneficiary before the plan matures as long as the original child in the plan is under 9 years old as long as the time limits regarding contributions and the plan s lifetime allow it 36. Refer to previous sections for more details regarding the handling of previous contributions and grants when the beneficiary is changed as well as the section on changing a beneficiary for full details. Withdraw Contributions for Non-Post-Secondary Education Purposes The subscriber may withdraw all or part of his or her contributions without providing proof of enrolment in a post-secondary institution as a non-post-secondary education withdrawal. Refer to the section on nonpost-secondary education withdrawals for full details. Transfer to the Family Single Student Plan before maturity Clients with Group Plans can transfer to the Single Student Pan when: The client on the new plan is the current client, The transfer request is made before July 31 st of the scheduled year of maturity or any time prior to the original student turning 19 years of age, whichever comes first. Rules for transfers to the Single Student Plan: A written request from the subscriber is necessary to initiate a transfer, A transfer package, including an application for the new plan, and a transfer form, is sent to the subscriber to be completed and must be returned to the customer service department before any changes can be made, Once the transfer package is processed the net principal, income, applicable grants (e.g. CLB is only transferrable if the student is the same) and grant income are transferred to the new plan. Sales charge are waived and insurance coverage remains unchanged. Withdraw the Grant Income from the Group Plan as an Accumulated Income Payment (AIP) A subscriber may withdraw the grant income in the plan as an accumulated income payment. An accumulated income payment is a payment of the income earned on government grants that has not been paid as part of an education assistance payment (also known as unused grant income). Accumulated income payments are paid only to the subscriber as listed on the plan. 36 A subscriber can keep the plan open for 35 years from the year of the application date; and contribute to the plan for 31 years from the year of the application date. 111

115 In a Family Group Plan the accumulated income payment can only consist of the grant income. The subscriber may withdraw this income if the subscriber is a Canadian resident and; the plan is at least 10 years old and every person who has been a beneficiary of the plan is at least 21 years old and is not eligible for an education assistance payment, or it s the 25th year (up to the 35 th year with the Foundation s approval) after the year in which the plan was opened, or every person who has been a beneficiary of the plan has died. The Minister of National Revenue may allow us to waive some of these conditions if the beneficiary is suffering from a severe and prolonged mental impairment. The income received from the plan will be treated as income in the year the subscriber receives it and will be subject to an additional penalty tax of 20%. The T1172 accumulated income payment withdrawal tax form must be included in the subscriber's tax return by April 30, at the latest, following the year in which the payments were made. In Quebec, the subscriber is also subject to a provincial tax. In order not to exceed the 20% tax payable by subscribers in other provinces, the additional tax in Quebec is set at 8% and the additional federal rate is reduced to 12%. AIP Payment Conditions A plan will close on the last day of February in the year after the first accumulated income payment is made from the plan. Therefore, if a subscriber has withdrawn only part of the income on deposit as an AIP, they must request the remaining income before the plan is closed on the last day of February in the year after the first accumulated income payment was made. Any remaining grants will be returned to the appropriate government. Transfer Grant Income (AIP) to an RRSP In order to eliminate or ease the tax impact of receiving the accumulated income payments, the subscriber may transfer the accumulated income to his or her RRSP or to a spousal RRSP, without having to pay taxes on the amount, as long as the subscriber has unused RRSP contribution room and does not exceed the age limit for making RRSP contributions. When the transfer takes place, the plan is terminated. Any remaining contributions are returned to the subscriber and any remaining grants are returned to the corresponding government. The maximum amount of the accumulated income that is available for transfer is $50,000 per subscriber. The subscriber may request us to transfer the payment directly into his or her RRSP or his/ her spouse's RRSP by returning the completed form T1171 Tax Withholding Waiver on Accumulated Income Payments from RESPs to us. Donate the Accumulated Grant Income If the subscriber does not qualify for the grant income or does not withdraw it, we will donate it to an educational institution of our choice. 112

116 Investment Strategy We conservatively invest contributions, government grants and the income they earn, mainly in Canadian fixed income securities, such as federal, provincial and/or municipal bonds, mortgage-backed securities, treasury bills and evidence of indebtedness of Canadian financial institutions with a Designated Rating. Income earned on contributions and government grants may also be invested in Canadian equities directly, US equities via certain ETFs that are traded on a stock exchange in Canada, and corporate bonds with a minimum BBB Rating. All equities and ETFs must be traded on a Canadian stock exchange. Our goal is to protect the value of contributions while generating income to help pay for the beneficiary s college or university education. The Plans portfolio advisors use a combination of investment strategies to achieve the investment objectives. Income from fixed income investments Interest is allocated to the Group Plan as it is earned. Realized gains and losses are spread over a five year period. Unrealized gains and losses are not allocated until they have been realized. This method of spreading the income allocated to the Group Plan results in smoother returns to the plan from year to year, which greatly reduces the volatility that can be found in the plan s annual investment rates of return; producing a more even distribution of income to the plan from year to year. Income from equities Dividends or distributions are allocated to the Group Plan in the month in which they are received. Realized and unrealized gains and losses are allocated monthly. 113

117 Fees and Expenses There are two categories for fees and expenses for the Group Plan; they are fees and expenses paid from subscribers deposits and fees and expenses paid from the income earned on contributions. Fee and Expense Type Paid from subscriber s contributions Paid on income earned Sales charge $100 per unit Amount Insurance Premium $0.17 per $10 of contributions Depository fee $3.50/$6.50/$10 per year Special processing fees Refer to section below Independent review committee fee Refer to prospectus Management fee 0.6 to 1.1 of 1% per year Sales Charge The subscriber will pay an up-front, one-time, sales charge of $100 per unit in his or her Group Plan. The sales charge will be deducted at 100% from each initial contribution until contribution until half the total fee has been paid. Afterwards, the fee will be deducted at 50% of each contribution until the sales charge is paid in full. The enrolment is non-refundable after the 60 day free look period. Eligible students may receive an amount equivalent to all or part of the sales charge with their education assistance payments. See Discretionary Payments to Students from Foundation section for further details. Insurance Premiums An insurance premium (plus applicable taxes) for group life and total disability insurance is deducted from each deposit and the balance becomes the client s contribution to the plan. The premium is 17 cents for every $10 the client deposits. Premiums are not deducted on one-time deposits or if the subscriber is 64 years of age or older. Insurance premiums are paid to the insurance company. Knowledge First Financial receives 25% of the premiums from the insurance company for administration. Depository fees Annual fee for processing the client s deposits is payable to Knowledge First Financial and is based on the client s contribution schedule: $10/year if the client is making monthly deposits. $6.50/year if the client is making annual deposits. $3.50/year if the client is making a single deposit. 114

118 Special Processing Fees The subscriber will be charged a one-time processing fee for specific one-time administrative processes. Please refer to the Prospectus for a full list of special processing fees. We will notify the subscriber before adding or changing any special processing fees. We also reserve the right to apply additional fees in situations where there are requests relating to the administration of a plan that are considered excessive. Refer to the Prospectus for a full list of special processing fees. Management Fee The management fee is an annual fee that covers the ongoing cost of supporting the Group Plan. It pays for investment management, administration, and for holding the plan s assets in trust. The fee is payable to Knowledge First Financial, the Foundation, the Trustee and the Portfolio Advisors. The management fee is currently between 0.6 and 1.1 of 1% per year and is calculated on the total amount that all subscribers have in the Group Plan. This fee is deducted from total monthly income before income is allocated to the subscriber s individual plan. The management fee is subject to GST or HST. Independent Review Committee (IRC) fee This is an annual fee for providing Independent Review Committee (IRC) services for subscribers payable from plan income. The independent review committee fee is charged to total plan income from the combined income of all Group Plans. Refer to the current Prospectus for independent review committee fees paid in last fiscal year. 115

119 Accounts The Subscriber s assets are held in different accounts depending on the type of funds that are held and for how long they are saving in a plan. The following diagram illustrates specific bank accounts that hold principal, income, grant payments, grant income, income held after plan maturity and income earned from the principal, and other sources after the plan matures. Education Savings Plan (ESP) Holding account non-registered funds Registered Education Savings Plan (RESP) Savings account registered funds (principal and income) Grant account grant and grant income Plan income after maturity FEAP account group income pool Income account Knowledge First Foundationgenerated funds 116

120 Holding Account If a child does not have a Social Insurance Number when the plan is purchased, the contributions are placed in a holding account. Money in the holding account is held in cash (and cash equivalents), in the name of the Knowledge First Foundation as the holding agent. Once the child s Social Insurance Number is received, Knowledge First Financial will transfer all contributions and income earned into the client s savings account, which is held in trust by the Plan s trustee. This amount transferred is used to calculate the CESG (and SAGES, QESI and AQESI). Fees deducted while contributions were in the holding account will be credited before the transfer, and then deducted from the savings account after the transfer. This will ensure grant eligibility on all deposits. If Knowledge First Financial has not received the child s Social Insurance Number within 18 months of the day the plan was opened, we ll cancel the plan and return the contributions in the holding account, plus income earned, less any fees, to the client. We will keep the amount paid in sales charge as a future credit for up to two years. Any income the contributions earn in the holding account will be included as taxable income for the client in the year it is earned. Savings Account Knowledge First Financial will open a savings account for the plan when we receive the child s Social Insurance Number. Contributions are received by the depository and credited to the client s savings account regularly. Grant account Government grants applied for and received are deposited into the student s grant account. Grants are paid out as part of the student s education assistance payment. Foundation education assistance payment (FEAP) accounts When a Group Plan matures, Knowledge First Financial will transfer the income from the savings account to the group FEAP account for that beneficiary s year of eligibility. This income is combined with the income of all other group plans with the same year of eligibility, including income from plans that closed before they matured. EAPs are paid from this account to beneficiaries with the same eligibility. 117

121 Income account Knowledge First Financial will credit income earned on the money in all group FEAP accounts to the income account. This money is held in trust by the trustee, and the Knowledge First Foundation, at its discretion, is able to use it to increase education assistance payments. This could include an amount equal to all or part of the sales charge paid. It can also be donated for the benefit of a university, college, or other educational institution. The following diagram illustrates the different aspects of the income account. Money from any cheque that has not been cashed by a client or student after 3 years from its issue date. Uncashed cheques older than 3 years EAPs set aside for deferrals and never claimed by the student. Forfeited Deferred EAPs Income Account Income earned on FEAP accounts Income earned on FEAP accounts after the year of maturity. Income earned on Income Account itself 118

122 Discontinuing a Group Plan A Group Plan is discontinued before it is cancelled to provide the subscriber the ability to use the sales charge already paid, and income accumulated in the plan. The subscriber s plan will be discontinued: 1. If the subscriber provides us with a written request, 2. If the subscriber withdraws all contributions for non-post-secondary education purposes before the plan s scheduled maturity date, or 3. If the subscriber stops his or her contributions and the plan balance is less than $350 (excluding government grants and income earned on grants), or the sales charge is not paid in full. What Happens once a Group Plan is discontinued? The subscriber must request the return of his or her net contributions, since these contributions are not automatically returned when a Group Plan is discontinued. The subscriber will receive his or her net contributions, once all contributions have clear the banking system. The subscriber will not be taxed on net contributions that are returned. The insurance coverage will stop once the plan is discontinued. The sales charge will remain in the plan as future credit for a period of two years, or until the beneficiary turns 14 years of age 37, whichever comes first. The income will be transferred into the Foundation education assistance payment account two years after the plan is discontinued. If the subscriber requests a return of his or her net contributions 38, we will return grant monies (Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings and Quebec Education Savings Incentive) relating to the amount of contribution withdrawn to the applicable government. The subscriber will lose the grant room for any grant monies returned to the applicable government. If the subscriber does not request to withdraw net contributions, the grant and grant income will be held on behalf of the beneficiary until the plan is reactivated or the plan is closed. Will the subscriber lose his or her net contributions if he or she does not request to have it returned? No. If the subscriber does not contact us to reactivate the plan within two years, or before the beneficiary turns 14 years of age, we will automatically close the plan and return the subscriber s net contributions. 37 The subscriber cannot reactivate a Group Plan once the beneficiary turns 14 years of age. He or she will need to open a Single Student Plan or Flex First plan at that point. 38 A partial return of net contributions once a plan is discontinued is not permitted. 119

123 Can the Subscriber Reactivate a Discontinued Group Plan? A subscriber can reactivate his or her Group Plan within two years of the discontinuation date, as long as the beneficiary is less than 14 years of age. To reactivate a discontinued plan, the subscriber is required to make a lump sum payment equal to: the contributions withdrawn, any missed contribution, plus any income that would have accumulated since he or she stopped making contributions. This maintains the integrity of the income pool. If a discontinued plan is not reactivated within the two years, the plan will be closed and the income earned on net contributions will be transferred to the Foundation education assistance payment account and distributed amongst the remaining eligible beneficiaries. In this case, the plan will be de-registered with the Canada Revenue Agency and we are not able to reinstate the plan. What Happens when the Beneficiary is 14 years of age or older The plan will cancel. Please refer to the following section: Cancelling a Group Plan 120

124 Cancelling a Plan 60 Day Free Look Period We offer each subscriber a 60 day free look period. The subscriber has the right to withdraw all of his or her contributions (including any sales charge or other fees deducted from contributions) and close the plan if he or she asks us within this 60 day free look period. A subscriber can submit a written request to cancel his or her plan at any time or request to transfer the plan to another RESP promoter. The subscriber s plan will also be cancelled: If the subscriber tells us to do so in writing within 60 days from the day the plan was opened. If the subscriber does not provide us with the beneficiary s Social Insurance Number within 18 months of opening the plan. If the plan is discontinued and the subscriber does not reactivate within two years or before the beneficiary turns 14 years of age (whichever comes first) If the subscriber asks us to transfer the plan to another RESP On December 31 st of the 35 th year after the year in which the subscriber opened the original plan. What happens when a non-registered plan is cancelled? We will return the subscriber s net contributions in his or her savings account, as long as it has cleared the banking system. The income is returned and will be taxed in the year it is withdrawn. What happens when a registered plan is closed? Once a registered Group Plan is closed we will de-register the plan with the Canada Revenue Agency and it will no longer be an RESP. Insurance coverage will end and we will return the subscriber s net contributions from his or her savings account once all contributions have cleared the banking system 39. Any income earned will be forfeited to the Foundation education assistance payment account and distributed amongst eligible beneficiaries. Government grants in the plan will be returned to the appropriate government. The subscriber can receive grant income as an AIP if he or she is a Canadian resident and: the plan is at least 10 years old, and every beneficiary that has been listed on the plan is at least 21 years of age, and not eligible for an education assistance payment, or it is the 35 th year after the plan was opened, or 39 Net contributions are not taxed by the Canada Revenue Agency. 121

125 every beneficiary that has been listed on the plan has died. The Minister of National Revenue may allow us to waive some of these conditions if the beneficiary is suffering from a severe and prolonged mental impairment. Grant income will be treated as income in the year it is received, and may be subject to an additional penalty tax of 20%. If the beneficiary does not qualify for the grant income as an education assistance payment, or the subscriber does not withdraw the grant income as an AIP, we will donate it to an educational institution of our choice. What happens to the income earned on the plan? If a plan is not registered and cancelled, the subscriber will receive all income earned on his or her contributions. This income is taxable in the year it is earned. If a registered plan is discontinued and not reactivated within 2 years from the discontinuation date, the income on the subscriber s contributions remains in the beneficiary group pool for that plan. It will then be disbursed to qualified students in the plan as an EAP. Any grant income in the plan can be withdrawn by the subscriber as an accumulated income payment. This can occur as long as the subscriber is a Canadian resident and meets the requirements to receive an accumulated income payment. Refer to the section on When the Beneficiary Does Not Pursue Postsecondary Studies, Accumulated Income Payment. If the subscriber does not qualify for the income or does not withdraw it, we will donate it to an educational institution of our choice. Can a cancelled plan be Re-opened? Once a plan is cancelled, it can never be reactivated. 122

126 Addendum I Calculating Units The following example illustrates how we calculate the number of units in the following scenario: A Number of years until beneficiary enters his or her first year of post-secondary studies 14 Years B Contribution frequency Monthly C Contribution Amount $100,00 D Contribution per unit, based on: $8.50 A (14 years) and B (monthly contributions) (from the contribution schedule D-14 in this example) E Total units C. D. ( = 11.76) units 123

127 Addendum II - Increasing Contributions When increasing contributions, the subscriber is required make up the difference between what he or she is currently contributing, versus the contributions under the proposed changes to the subscriber s plan. The difference the subscriber is required to make up includes: 1. Principal in the plan 2. Income adjustments 3. Sales charge on additional contributions (units) 4. Insurance premiums The example that follows illustrates a Group Plan where the subscriber increases his or her monthly contribution by $

128 1.0 Principal: To date, the Subscriber has contributed $ in principal. If the subscriber had been depositing $ per month from the beginning of the plan, his or her total principal to date would have been $ Income Adjustment: When adding units, the Subscriber is required to pay the difference in interest (income) the agreement would have earned on the additional units from the time of enrolment. This is required to ensure that all plans earn approximately the same amount of interest per unit at maturity. Therefore, an additional $ is required in principal to complete the conversion Had the Subscriber purchased units at the time of enrolment, they would have earned $10.18 in interest on their contributions. To date, the Subscriber has earned $2.59 in interest. Therefore, the Subscriber is required to pay the difference of $ Sales charge 4.0 Insurance Premium When increasing contributions, the Subscriber is required to pay sales charge equivalent to the new units added to the plan. In this example: Original units = Subscriber paid 2, in sales charges to date New units = Had the Subscriber purchased units at the time of enrolment, he or she would have paid 2, in the sales charge to date The Subscriber is required to pay the premium for the new contribution amount for all new contributions. For this conversion, the quotation includes the insurance premium for the next deposit date (September 15th). Insurance premiums are embedded in the contribution schedule and are automatically adjusted when increasing contributions. The difference in sales charge paid is 2, , =

129 Quote Completion Total: The quote completion total is the sum of all fees and adjustments necessary to increase the number of units in this plan. In this example, the quote completion total is: $ in principal $ 7.59 in interest $ in sales charges $ 3.71 in Insurance premium $ Quote completion total 126

130 Addendum II Reducing Contributions The following example illustrates a Group Plan where the subscriber is decreasing from 8 to 6 units. In this example the subscriber has only made $320 in contributions to date, of which 100% of the contributions have gone towards paying the sales charge in the plan. 1.0 Principal: To date the subscriber s contributions have all gone towards sales charges. Therefore there is not principal in the plan 3.0 Sales charge Waiver: This amount represents the surplus Sales charges created from a reduction in units. To date on this plan the Subscriber has contributed $ in sales charges for units which means the subscriber has paid $38.93 of sales charges on each unit ($ / ). The subscriber is discontinuing units. The sales charges paid on these units ( x $38.93 = $81.00) become sales charge waivers. 3.0 Sales charges To date, the Subscriber has contributed $ in sales charges for units which means the subscriber has paid $38.93 of sales charges on each unit ($ / ). The subscriber is discontinuing units. The sales charges paid on these units ( x $38.93 = $81.00) become sales charge waivers which leaves $ ($ $81.00) in sales charges paid on the remaining 6 units. If this plan had been started with 6 units, the amount of sales charges paid including the next deposit on the plan would be $ Therefore the sales charges required to complete the quotation is $58.04 ($ ) 4.0 Insurance Premium The Subscriber is required to pay the premium for the new contribution amount for all new deposits. For this conversion, the quotation includes the insurance premium for the next deposit date (September 15th). Insurance premiums are embedded in the contribution schedule and are automatically adjusted when increasing contributions. 127

131 Quote Completion Total: To complete this reduction the subscriber is required to make up the sum of all fees and adjustments necessary to reduce his or her plan by two units. In this example, the Quote Completion Total is: $ in sales charges $ 1.36 in Insurance Premium $ Quote completion total This amount is equivalent to the amount of two contributions. ($29.70 x 2 = $59.40) 128

132 Addendum III Reactivating Discontinued Units When reactivating units or partial units the subscriber is required to make up missed contributions and pay an income adjustment from the time the units were discontinued. This includes 1. Principal in the plan 2. Income adjustments 3. The outstanding sales charge on reinstated units 4. Sales charge waivers used 5. Insurance premiums The example that follows illustrates a Group Plan where the subscriber is reactivating 17 units in his or her plan. The subscriber originally had 37 units, had reduced the plan to 20 units (discontinuing 17units), and now wishes to reactive all discontinued units. 129

133 1.0 Principal: To date, the subscriber has contributed $0.00 in principal. If the subscriber had been contributing $ per month from the beginning of the plan, his or her total principal to date would have been $0.00. The plan has not earned principal because 50% of sales charges were not paid before this conversion quotation was generated. 2.0 Income Adjustment: When reinstating discontinued units, the subscriber is required to pay the difference in the income the plan would have earned on the discontinued units from the time the units were discontinued. This is required to ensure that all plans earn approximately the same amount of income per unit at maturity. In this example, the plan had not earned income since it has not accumulated principal because 50% of sales charges were not paid before this conversion quotation was generated. 3.0 Sales charges When reinstating discontinued units, the subscriber is required to pay the outstanding sales charge for reinstated units. In this example: 4.0 Insurance Premium The subscriber is required to pay the premium for the new contribution amount for all new contributions. A sales charge waiver of $ was created when the 17 units were discontinued. Of remaining 20 units, $ has been paid. The plan requires $1, in sales charges to reinstate the 17 discontinued units, of which $ will be applied from sales charge waivers. The difference required in sales charges will be calculated in the quote completion total. For this conversion, the quotation includes the insurance premium for the missed deposits for the discontinued units. Insurance premiums are embedded in the contribution schedule and are automatically adjusted when increasing contributions. 130

134 Quote Completion Total: The quote completion total is the sum of all fees and adjustments necessary to reactive the discontinued units in this plan. In this example, the quote completion total is: In this example, the quote completion total is: $ in sales charges $ 3.84 in insurance premium $ sales charge waivers used $ Quote completion total 131

135 Addendum IV Insurance Inclusions and Exclusions Life Insurance No benefit is payable if death: 1. is due to suicide, while sane or insane, if insurance has been in force for less than two years 2. occurs while committing or attempting to commit a criminal offence 3. is due to a pre-existing condition and occurs within 24 months of the date the subscriber becomes insured. A pre-existing condition means a condition for which they received attention, consultation, diagnosis or treatment (including taking pills, injections or other medications) from a physician or practitioner in the 12 months before they became insured. This clause applies whenever units or additional subscribers are added to an existing plan. Disability Insurance No benefit is payable for: 1. pregnancy (This exclusion does not apply to complication of pregnancy, provided the pregnancy began after the subscriber became insured) 2. intentionally self inflicted injuries, while sane or insane, 3. committing or attempting to commit a criminal offence, 4. civil disorder or war, whether or not war was declared, 5. any cause if the disability is related to a pre-existing condition and begins within 24 months of the date the subscriber became insured. A Pre-existing condition means a condition for which they received attention, consultation, diagnosis or treatment (including taking pills, injections or other medications) from a physician or practitioner in the 12 months before they became insured. This clause applies whenever units or additional subscribers are added to an existing plan. The subscriber is not considered Totally Disabled unless he or she is under the active and continuous care of a physician for that disability. The subscriber is not considered Totally Disabled due to the use of drugs or alcohol unless: 1. they are hospitalized and are receiving continuous treatment for that disability 2. they are receiving continuous treatment for that disability in a program of rehabilitation approved by the Insurer, or 3. they are suffering from organic disease that, if the use of the drug or alcohol stopped, would cause total disability. 132

136 Addendum V - Sales charge Deductions The following example illustrates how the sales charge would be deducted if the subscriber purchased two units. In this example the monthly contribution is $55.05 ($56 less insurance premiums), and the subscribers total sales charge is $200. Sales charge deducted Contribution monthly cumulative 1 st month $55.05 $55.05 $ nd month rd month th month th month th month th month

137 Family Single Student Plan Family Single Student Plan Overview The Family Single Student Plan is a non-group education savings plan. The income earned on these plans is not pooled as it is in a Family Group plan. Education assistance payments are potentially lower than that of the Family Group Plan as they include only income earned on the subscriber s own contributions. The Family Single Student plan offers more flexibility and criteria for receiving education assistance payments but is not eligible for the discretionary Foundation top up. Subscribers may choose the amounts and the timing of their education assistance payments. 134

138 Risk Factors The following are risk factors to be considered before investing in the Family Single Student plan: If the Social Insurance Number for the beneficiary is not provided within 18 months of the day the plan was opened, we will cancel the plan. If for any reason the Canada Revenue Agency cannot validate the beneficiary s Social Insurance Number, we cannot register the plan as an RESP and will have to cancel the plan. If the plan is cancelled after the 60th day from when it was opened, the subscriber will not be reimbursed for all of the fees paid to date, and as per the Tax Act, the subscriber could lose the income in the plan if he or she is not eligible for an accumulated income payment, or if the subscriber does not transfer the plan to another RESP. If the beneficiary does not attend a recognized post-secondary institute and program, the income on the plan could be lost if not withdrawn as an accumulated income payment and the government grants will have to be repaid to the applicable government. If contributions are withdrawn for non-post-secondary education purposes, some of the government grants will have to be returned to the applicable government. If contributions are higher than the $50,000 limit allowed by the Tax Act, the subscriber may have to pay a penalty tax. We cannot guarantee that the beneficiary will qualify for education assistance payments, or how much the education assistance payments will be. The money in our Single Student Plan is invested conservatively in Canadian fixed income securities and certain equities. However, there is some investment risk involved in investing in securities. 135

139 Subscribers Who Can Be a Subscriber? Anyone who is a Canadian resident and has a Social Insurance Number (SIN) may subscribe to the Flex First Plan. A company or trust may not act as subscriber to the plan. Also, securities regulations require that all enrolment applications be signed in the province where the subscribers reside and where the sales representative holds a license. RESPs allow the designation of a joint subscriber (defined as a spouse or common-law partner). The subscriber or joint subscriber can contribute to several Registered Education Savings Plans for the same beneficiary. Is It Possible to Change a Subscriber? Change while subscriber is alive: At least one original subscriber must remain on the plan, unless an individual has acquired the subscriber's rights under the RESP as a result of a decree, order or judgment or under a written agreement relating to the division or property following a breakdown of marriage or common-law partnership. Change upon subscriber's death: Following the death of a subscriber, the plan may continue in the estate of the individual, or a new subscriber may be appointed. The subscriber s last will and testament may describe who will acquire the deceased individual s rights as a subscriber, or the executor may choose to assign a replacement subscriber. In the case where there is no Will, the subscriber s family may apply for a court appointed administrator, who is authorized to provide instructions regarding the replacement of the original subscriber. In cases where there is insurance on the plan and the deceased subscriber is removed, the insurance coverage will also cease and the deposits will need to be made by the new subscriber. Add a joint subscriber if one was not named when plan was opened: Only the spouse (married, common law or same sex) can be added as a joint subscriber. 136

140 Beneficiary Who can be a Beneficiary? As required by federal government regulations, the beneficiary must be a Canadian resident and must have a Social Insurance Number in order for the plan to be registered and be eligible for government grants. It is the subscriber s responsibility to submit a valid Social Insurance Number to us. Subscribers should contact Employment and Social Development (Canada) to request a Social Insurance Number for his or her child. A child may be the beneficiary of more than one RESP. For example, a parent and grandparent may both open separate RESPs for the same child. If the subscriber is someone other than the beneficiary s custodial parents, Knowledge First Financial is required to send a letter to the custodial parent(s) in order to let them know that a plan has been opened in their child s name. This is to help avoid over contribution situations. See the Contributions section for more information regarding over contributions. The beneficiary in the Family Single Student Plan can be a person of any age. What if the Beneficiary does not have a Social Insurance Number? The subscriber can open a non-registered plan for the beneficiary. We must receive a valid Social Insurance Number within 18 months from the day the plan is opened or the plan will be closed. Grantonly plans require the beneficiary to have a valid Social Insurance Number when the plan is opened. Social Insurance Number applications can be downloaded from the Employment and Social Development of Canada website How are Contributions Handled for Non-Registered Plans? All contributions made into the plan before it is registered as an RESP will be placed into a non-registered holding account called a holding account. The holding account is not eligible for tax benefits or grants. Sales charge and other fees are deducted from this account. Net contributions in the non-registered holding account earn income. Once we receive the beneficiary s Social Insurance Number, all contributions and income earned on contributions will be transferred to the RESP savings account. The fees that were deducted from the contributions will be credited back to the RESP before the transfer, and then deducted again after the transfer has occurred. The total amount of transferred contributions made by the subscriber plus any income earned will then be considered eligible to receive government grants. Any income earned in the non-registered holding account will be included in the subscriber s taxable income in the year it was earned. If the plan is closed before it is registered, the net contributions plus income earned in the holding account will be returned to the subscriber. 137

141 Is it Possible to Change a Beneficiary? A beneficiary in a Single Student Plan may be changed any number of times and the subscriber can become the beneficiary if he or she chooses to go back to school. The subscriber is also required to provide a valid Social Insurance Number and proof that the new beneficiary is a Canadian resident. The plan will still close no later than December 31 st of the 25 th year (up to the 35 th year with the Foundation s approval) after the year the plan was opened. How are Previous Contributions Handled if the Beneficiary is Changed? When a beneficiary under the Single Student Plan is replaced, contributions made for the former beneficiary will be considered to have been made for the new beneficiary. Contributions made on behalf of the new beneficiary will not create an over contribution (with respect to the maximum RESP contribution lifetime limit of $50,000) when one of these two criteria is met: 1. Both beneficiaries have at least one parent in common and the new beneficiary is under 21 years of age, or: 2. The two beneficiaries (former and new) are related to an original subscriber by blood or adoption and neither beneficiary has reached 21 years of age. However, if the new beneficiary does not meet the above two criteria and already has an RESP, the previous contributions must be added and considered in the calculation of eligible future contributions for the new beneficiary's RESP. The additional contribution history may create an over contribution situation for the new beneficiary and result in a penalty tax for the subscriber. How are Previous Grants Handled if the Beneficiary is Changed? To keep the Canada Education Savings Grant (CESG), or Saskatchewan Advantage Grant for Education Savings (SAGES), or Quebec Education Savings Incentive (QESI) grants paid into the Plan, one of the same two criteria outlined in the section above must be met. Since the Canada Learning Bond (CLB) is not transferrable between different beneficiaries, it will have to be refunded to the government when the beneficiary changes. 138

142 Contributions About Contributions Subscribers can make one-time, monthly or annual contributions, following the contribution schedule for the Single Student Plan. Contributions must be at least: $9.90 per month, or $110 per year, or a lump sum of $449. Contributions correspond to units in the plan. The number of units in a plan depends on how much the subscriber contributes, how often they contribute, and how many years until the beneficiary starts college or university. The contribution schedule shows the contribution amount per unit. The contribution amount made depends on the beneficiary group and whether they will make a one-time contribution to the plan or make periodic monthly or annual contributions. The sales charge for the plan is calculated based on how many units the plan has. The more units the higher the sales charge will be. Subscribers can change their contribution option, or change the number of units, at any time. A change to contribution amounts or frequency could impact the number of units in the plan. Contributions can be made into the Single Student Plan up to December 31 st of the 21 st year following the year in which the plan was opened. What are the Minimum Contribution Limits? Contribution Type Minimum Monthly $9.90 annually $110 lump sum $449 Minimum contribution requirements do not apply when the plan only receives the Canada Learning Bond or the BC Training and Education Savings Grant, where subscriber contributions are not required. 139

143 What are the Maximum Contribution Limits? The maximum combined total of $50,000 per beneficiary can be contributed towards all RESPs that are held on his or her behalf. What are the Implications of Exceeding the $50,000 Contribution Limit? The obligation to act in the event of an RESP over-contribution rests with the subscriber. The subscriber will get a notification from the Canada Revenue Agency (CRA) indicating that he or she has overcontributed for a specific beneficiary. The subscriber has a choice at this point where he or she can either: 1. Withdraw the over-contribution amount from the beneficiary s plan and bring the RESP contribution total down to $50,000, or 2. The subscriber can do nothing, in which case he or she could be subject to a tax penalty. If there are multiple RESP plans spread out over more than one RESP promoter, the subscriber and the government are the only ones who know that an over-contribution exists for a particular beneficiary. The subscriber can contact the chosen RESP promoter and make arrangements to withdraw the appropriate amount of contributions from his or her RESP. The subscriber should advise the promoter that he or she is withdrawing to fix an over-contribution situation, so that the Canada Education Savings Grant, Saskatchewan Advantage Grant for Education Savings and Quebec Education Savings Incentive, if any, is not affected. In these cases, the government will provide relief from the rule that states when contributions are withdrawn from an RESP for non-educational purposes, the corresponding grant must be returned. If the promoter does not know this is an over-contribution fix, then the promoter may process the withdrawal as a standard non-post-secondary education withdrawal of contributions, which would result in the grant being returned. What are the Tax Consequences for Excessive Contributions? A 1% monthly tax penalty applies if the combined contributions made to all RESPs on behalf of a beneficiary exceed the total $50,000 limit set by the federal government. Tax penalties are payable by each subscriber on his or her share of the excess contributions that are not withdrawn by the end of the month. The tax penalties payable by each subscriber must be paid to the Canada Revenue Agency within 90 days following the end of the year in which the excess contributions were made. The subscriber must complete the appropriate income tax form as stipulated by the Canada Revenue Agency. 140

144 How are Contributions Made? There are eight ways to contribute to the Single Student Plan. They consist of: monthly, annual, one-time, monthly for 5 years, annual for 5 years, monthly maximize, annual maximizer, and funds transferred from another RESP provider. We accept contributions by cheque or by pre-authorized deposit. We do not accept cash or credit card for any contributions. Contributions can be made into the Family Single Student Plan up to December 31 st of the 21 st year following the year in which the plan was opened. A maximum combined total of $50,000 per beneficiary can be contributed towards all RESPs that are held on their behalf. Contribution Schedules for the Single Student Plan Subscribers are required to follow and complete their chosen contribution schedule for the first three years. After three years the Subscriber can choose how and when they would like to make contributions or stop making contributions altogether. The letter of the deposit code represents the deposit method and the numerals following the letter represent the number of years from the enrolment year until the year of maturity. How to use the contribution schedule table For example, let s assume the beneficiary is a newborn. If the subscriber wants to make monthly contributions for the full term of the contribution schedule (17.3 years), they will contribute $4.86 each month for each unit purchased. They would make 208 contributions over the life of the plan, for a total investment of $1, per unit. 141