Registered Education Savings Plan Information Booklet

Registered Education Savings Plan Information Booklet . This booklet is intended to address questions commonly asked about Registered Education Savi...
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Registered Education Savings Plan Information Booklet .

This booklet is intended to address questions commonly asked about Registered Education Savings Plans (RESPs). The booklet is not intended to give you advice on how to invest or the terms of the Phillips, Hager & North Registered Education Savings Plan (“the Plan”). Complete details of the Plan terms are contained in the official Plan documentation. In the event of any inconsistency between this booklet and the Plan documentation, the Plan documentation will govern. The booklet is not intended to give you tax advice on RESPs. The tax laws regarding RESPs are complex and you should consult your tax advisor for specific information. This booklet has been solely prepared by Phillips, Hager & North Investment Management Ltd. The Royal Trust Company (The Trustee) will not be liable for loss or damage suffered or incurred by the Plan, you or any beneficiary arising from statements contained herein. If you have any questions about RESPs in general, or your situation in particular, please contact our Investment Funds Centre at 1-800-661-6141. Additional information is provided in the RESP section of our website at www.phn.com.

Table of Contents

1. WHAT IS AN RESP? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. RESP TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. WHO CAN PARTICIPATE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.1 RESP Subscribers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 RESP Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.3 What are the age limitations for beneficiaries? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.4 Can you change a beneficiary? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4. RESP PLAN OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 Family Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.2 Individual Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5. CONTRIBUTION LIMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6. HOW DO YOU APPLY FOR A PH&N EDUCATION SAVINGS PLAN? . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7. CANADA EDUCATION SAVINGS GRANT (CESG) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.1 How do you apply for Canada Education Savings Grants (CESGs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.2 How long does it take to get CESGs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.3 How can you optimize RESP contributions and CESGs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.4 Is it better to make a single lump sum contribution upfront rather than contribute over time? . . . . . . . . . . . . . . . . 6 7.5 How do you claim unused CESG contribution room? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.6 How do you calculate unused CESG contribution room? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.7 What happens if a beneficiary does not attend a post-secondary educational institution? . . . . . . . . . . . . . . . . . . . 7 8. INVESTMENT FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.1 What are the investment options? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.2 Are there any foreign content restrictions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9. RESP TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.1 Are RESPs transferable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.2 Partial Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.3 Transfers can affect the start & end dates of your Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.4 Rules for transferring CESGs (Eligible Transfers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.5 How to arrange transfers into your PH&N RESP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10. EDUCATIONAL ASSISTANCE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10.1 What are Educational Assistance Payments (EAPs)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10.2 How soon can you apply to start payments for beneficiaries? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10.3 Are there any limits on EAPs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10.4 Are part-time students eligible for EAPs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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Table of Contents

10.5 What happens when a beneficiary attends a foreign university? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.6 How do you apply for EAPs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11. REFUNDS OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11.1 Topping Up an Educational Assistance Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11.2 Refunds for non-educational purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11.3 How to apply for a refund of contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 12. ACCUMULATED INCOME PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 12.1 What is an Accumulated Income Payment (AIP)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 12.2 Can you roll an AIP into an RRSP? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 12.3 How do you apply for an AIPs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 13. DESIGNATED EDUCATIONAL INSTITUTION PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 13.1 What is a designated Educational Institution Payment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 13.2 How do you apply for a designated Educational Institution Payment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 14. IN THE EVENT OF A PREMATURE DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 14.1 What happens if a beneficiary dies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 14.2 What happens if a subscriber dies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15. PLAN TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15.1 Events that trigger Plan Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15.2 Events that form part of a Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16. RESP TAX TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16.1 How are RESPs taxed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16.2 What are the implications of an over-contribution? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 16.3 Can informal trusts acquire an RESP? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17. RESP GETTING STARTED CHECKLIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 18. GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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1. WHAT IS AN RESP? A registered education savings plan (RESP) is a program designed to help parents, grandparents, family and friends to save and invest to help pay for the future cost of a child’s education after high school.

At Phillips, Hager & North, the plan takes the form of a PH&N investment fund account that is registered with the Canada Revenue Agency (CRA) as an Education Savings Plan. Contributions for beneficiaries under 18 years of age can qualify for Canada Education Savings Grants (CESGs) awarded by the federal government. Both contributions and grants earn investment income on a tax-sheltered basis. However, contributions are not tax deductible when paid, nor taxable when refunded. The grants and investment earnings are taxed upon distribution to the student in the form of Educational Assistance Payments (EAPs). A Getting Started Checklist can be found on page 14 to help you streamline the application process.

RESP on behalf of individuals named under the plan as beneficiaries. ¡ A $25,000 account minimum (per household) applies to new clients who subscribe to a Phillips, Hager & North Education Savings Plan. ¡ Joint subscribers are permitted if they are spouses or common-law partners for the purposes of the rules in the Income Tax Act relating to RESPs. Former spouses or common-law partners of the beneficiary are also permitted to contribute. ¡ Subscribers can be replaced under a settlement following a breakdown of marriage, or common-law partnership. ¡ Upon death, a joint subscriber continues the plan. If there is no surviving subscriber, the executor of the deceased’s estate may appoint a replacement subscriber. 3.2 RESP Beneficiaries

Beneficiaries are individuals named by the subscriber who will receive EAPs when they qualify for these payments under the terms of the plan.

2. RESP TERMS

¡ There must always be at least one beneficiary.

¡ The Plan is a three-way contract between the “Subscriber” (you), the “Promoter” (PH&N, or we/ us in this booklet) and the “Trustee” (The Royal Trust Company).

¡ The beneficiary must have a Canadian Social Insurance Number (SIN).

¡ Canada Education Savings Grants (CESGs) are administered for the government by Human Resources and Social Development Canada (HRSDC). ¡ Educational Assistance Payments (EAPs) consist of CESGs and/or investment earnings paid to assist a designated Beneficiary with post-secondary education. ¡ See “Glossary” for more details on these and other definitions used with RESPs.

3. WHO CAN PARTICIPATE? An RESP enables the subscriber (usually a parent or grandparent, but it can be any relation or friend) to save and invest money for the beneficiary (usually a child). The savings can grow on a tax-sheltered basis within the RESP until the beneficiary enrols in an approved post-secondary institution. The beneficiary will be able to draw upon the holdings of the RESP in the form of EAPs to pay for his or her education after high school. 3.1 RESP Subscribers

A subscriber is a person with a Canadian Social Insurance Number (SIN) who agrees to contribute to an Registered Education Savings Plan Information Booklet

¡ A person may be a beneficiary of more than one plan.

¡ The beneficiary must be a resident of Canada when the designation is made. Prior to being designated, every RESP beneficiary is required to have a SIN. To register a child with a SIN, you can: ¡ Ask us for a SIN application form; ¡ Obtain a SIN application form from your local Human Resources and Social Development Canada (HRSDC) office; or, ¡ Download a SIN application form from http://www.servicecanada.gc.ca/en/sc/sin/index.shtml. After completion, ask your local HRSDC office to process the application. When the SIN is issued, please notify us and we can process your beneficiary designation and apply for grants in respect of contributions you make to the RESP for that beneficiary. 3.3 What are the age limitations for beneficiaries?

As with any registered savings plan, RESP family plans and Canada Education Savings Grants (CESGs) are governed by strict guidelines:

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¡ You can apply for CESGs on behalf of beneficiaries until December 31 of the year each turns age 17. ¡ The latest age at which a beneficiary can be designated to new individual or family plans and be eligible to apply for a CESG is age 14 (but see next point for age 15 to 17). ¡ CESGs can be claimed for a 15- to 17-year-old beneficiary if the child was previously a beneficiary under an RESP where either:  a minimum of $2,000 of contributions was added to and not withdrawn from an RESP before the year in which the beneficiary turned 16, or  if a minimum of $100 in annual contributions has been made to and not withdrawn from RESPs in respect of the beneficiary in any four years before the year in which the beneficiary turned 16. ¡ If grants are not sought, the maximum age for designation of a new beneficiary to a family plan is 20 years old (useful for replacing beneficiaries who have elected not to continue post-secondary education). ¡ A beneficiary can be designated to an individual plan at any age. 3.4 Can you change a beneficiary?

Yes, as long as you abide by certain conditions. A beneficiary may be replaced without affecting the CESGs paid into the plan, or creating a potential over-contribution penalty, provided: ¡ the replacing beneficiary is a sibling of the former beneficiary; or, ¡ both are related by blood or adoption to an original subscriber; and,

Money in a family plan can be used to assist one or more beneficiaries. If one beneficiary does not pursue higher education, or if education costs vary between beneficiaries, you can allocate funds to other qualifying beneficiaries. A family plan may be appropriate if you are saving on behalf of more than one child, and would like any or all of the children to be able to use the money. There are several things to consider when determining whether a family plan is appropriate to your circumstances: ¡ It is simple to administer. ¡ There is a single application form. ¡ A single investment all beneficiaries.

direction

applies

to

¡ You can add or replace a beneficiary at any time, subject to the criteria listed in Section 3.4. ¡ Each beneficiary must be connected by blood relationship or adoption to each current, or to any deceased, original subscriber (i.e. grandchild, child or sibling). ¡ A beneficiary must be under age 21 at the time of being designated to a family plan. This rule is waived if the beneficiary was previously designated under another family RESP that is being transferred to your PH&N RESP. Note: The plan expiry date must be no later than the last day of the 35th year after the initial year of the family plan. Use caution if adding a new child to an existing family plan, as the plan may expire before the youngest has completed post-secondary education. Consider opening a new plan for newborns. 4.2 Individual Plan

¡ a replacement beneficiary must be under the age of 21 to be added to the plan.

An “individual plan” has a single beneficiary for which there are no relationship requirements. Anyone can contribute to such a plan, including extended family members and friends.

If the above conditions are not satisfied, the subscriber’s potential tax consequences can be so punitive that the terms of our RESP do not permit “ineligible” beneficiary replacements.

An individual plan might be appropriate if you want to save for a child who is not related to you. There are several things to consider when determining whether an individual plan is appropriate to your circumstances:

4. RESP PLAN OPTIONS

¡ You can start an individual plan for a beneficiary of any age.

4.1 Family Plan

In a “family plan”, you can name one or more children as beneficiaries as long as they are related to you by blood or adoption. A family plan allows parents, grandparents or siblings of children (including adopted children) to contribute as subscribers. 4

¡ You can start an individual plan for yourself to save for adult education courses on a tax-sheltered basis in future years. ¡ You can transfer to/from family from individual plans if the

plans to/ age and

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relationship criteria in sections be met.

3.3 and 4 can

¡ Beneficiaries can be replaced. Any replacement beneficiary should be under 21 and be a sibling of the replaced beneficiary or, both beneficiaries must be under 21 and a blood/adoption relative of the original subscriber.

5. CONTRIBUTION LIMITS As registered accounts, RESPs are designed to help you save for the cost of post-secondary education within strict parameters. ¡ The lifetime contribution limit is $50,000 per beneficiary. ¡ Annual contributions may be made in any amount up to the lifetime contribution limit of $50,000. ¡ A contribution rate of $2,500 per beneficiary per year will earn the maximum in CESGs ($500 per year) from 2007 and onward. Before 2007, the maximum contribution limit qualifying for the 20% CESG was $2,000 ($400 per year from 1998 to 2006).

6. HOW DO YOU APPLY FOR A PH&N REGISTERED EDUCATION SAVINGS PLAN? Complete our Account Application for an Education Savings Plan. Our application form is included with a kit that includes this information booklet. The application may also be obtained by calling our Investment Funds Centre at 1-800-661-6141, or by downloading a form from the RESP section of our website. To establish an RESP, please follow these steps: ¡ After you have read this booklet, please review the Individual or Family Education Savings Plan Text.. ¡ Review the simplified prospectus and financial statements for our investment funds and choose the funds you would like to use for your RESP. ¡ Complete the Account Application for an Education Savings Plan. ¡ Complete the Canada Education Savings Grant Application for each beneficiary, if appropriate.

¡ The deadline for RESP contributions is December 31 of each year.

¡ Write a cheque to RBC Dexia Investor Services Trust for your initial contribution.

¡ Contributions cannot be made after the 31st year following the initial year.

¡ Please send the applications for the plan, the grant and the beneficiary designation form, plus your cheque, in the reply-paid envelope provided with our ESP kit.

¡ Under a family plan, contributions cannot be made in respect of a beneficiary who has attained 31 years of age. There are no age restrictions under an individual plan. ¡ The PH&N minimum is $1,000 per plan for both initial and subsequent single contributions. ¡ Contributions may be made automatically from your bank by pre-authorized chequing (minimum $100 per month). ¡ You must tell us how each contribution is to be apportioned between your beneficiaries, otherwise it will default to the beneficiary allocation provided on the account application.

At any stage during this process, please feel free to call our Investment Funds Centre for assistance.

7. CANADA EDUCATION SAVINGS GRANT (CESG) A Canada Education Savings Grant (CESG) is paid, under certain conditions, by Human Resources and Social Development Canada (HRSDC) to the RESP trustee for deposit on behalf of a beneficiary. 7.1 How do you apply for Canada Education Savings Grants (CESGs)?

Please complete our Canadian Education Savings Grant Application Form: You will find a Canada Education Savings Grant Application included with the PH&N ESP kit. Copies are available on the RESP portion of our website, and through our Investment Funds Centre. Before completing the form, you should familiarize yourself with these qualifications:

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¡ Grants are calculated on the basis of 20% of each contribution up to a maximum lifetime limit of $7,200. ¡ The maximum annual contribution eligible for the 20% grant is $2,500, to a maximum annual grant awarded of $500. ¡ For beneficiaries younger than 15 years, the only requirement for CESG eligibility is that they have a social insurance number and are Canadian residents at the time each contribution is paid. If this has given you sufficient understanding of the requirements, please complete the Canadian Education Savings Grant Application Form (both Part A & B per beneficiary). If you have questions, please call our Investment Funds Centre at 1-800-661-6141. 7.2 How long does it take to get CESGs?

It takes approximately two months for CESGs to be awarded. At the end of each month we send details of all RESP contributions received from our clients to HRSDC who review contributions for each beneficiary to determine grant eligibility. HRSDC remits approved grants to the Trustee at the end of the following month. Units are then purchased for your RESP and we send you a confirmation of the transaction. 7.3 How can you optimize RESP contributions and CESGs?

Plan a schedule of contributions until the beneficiary turns 17: Starting January 1, 2007, children who are Canadian residents for tax purposes can apply to receive up to $500 per year of CESGs until they attain age 17, to a maximum lifetime CESG total of $7,200. Provided a subscriber makes $2,500 contributions to an RESP on their behalf every year, the $500 grant (20% of $2,500) can be claimed. But if contributions fall short of the normal $2,500 rate, or if contributions are not made, the child accumulates unused grant contribution room. This can be claimed later on if future contributions exceed $2,500. The maximum grant that will be paid by HRSDC in any one year is $1,000. However, as indicated earlier, the annual contribution can be made in any amount up to the remaining lifetime contribution limit ($50,000). As a result of this flexibility, your optimum contribution schedule will depend on your individual circumstances.

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7.4 Is it better to make a single lump sum contribution upfront rather than contribute over time?

Will the compounding returns of a single contribution of $50,000 compensate for the loss of the CESG? Perhaps. It depends on the age of the child, and the type of after-tax investment returns. One needs to compare the total dollars available under different funding scenarios: Scenario 1

Contribute the lifetime limit of $50,000 in one single year to earn one year of grants, and allow the total investment to grow sheltered from tax until the beneficiary withdraws it to pay for his or her postsecondary education. Scenario 2

Opening the RESP with a larger contribution (e.g., $16,500) allows you to take advantage of the potential for tax-free growth, while still leaving room for annual contributions so the account can attract the maximum CESG. Deposit $33,500 in an investment account where the returns are not sheltered from tax. Make annual withdrawals of $2,500 from the investment account to contribute it to the RESP and earn the maximum annual CESG. When the lifetime maximum CESG ($7,200) is received, transfer enough money from the investment account to the RESP account to make up the $50,000 maximum lifetime contribution. The contributions and the CESG amounts held within the RESP will grow sheltered from tax until the beneficiary withdraws them to pay for his or her post-secondary education. Generally, it makes sense to fund the RESP over time to maximize the CESG than to contribute a lump sum. However, if the contributor is in the highest marginal tax rate bracket and the funds outside the RESP are invested conservatively in income-generating investments, then it may be better to contribute the lifetime limit in a lump sum and receive the benefit of the tax-sheltered investment returns. You can call our Investment Funds Centre to help you develop a contribution schedule that best fits your circumstances.

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7.5 How do you claim unused CESG contribution room?

would have to be repaid to HRSDC unless a new, related beneficiary under 21 was designated.

¡ Due to the removal of the annual contribution maximum, you could contribute up to what is left of your lifetime limit, however, you can only apply to claim a maximum of $1,000 in grants per year.

¡ An individual plan beneficiary can be replaced by a beneficiary who is under 21 and a sibling of the replaced beneficiary without complications. Alternatively, if both replaced and replacing beneficiaries are under 21 and related to the subscriber by blood or adoption, then beneficiary replacement is permitted. Such replacements allow you to retain any CESGs in the plan for the benefit of the replacement beneficiary.

By contributing between $2,500 and $5,000 per beneficiary per year until the maximum is reached, or until the beneficiary attains age 17, whichever occurs first.

¡ Beneficiaries who become non-resident for income tax purposes are not entitled to accumulate unused grant contribution room during the time that they are nonresident. You can call our Investment Funds Centre to develop a contribution schedule that fits your circumstances. 7.6 How do you calculate unused CESG contribution room?

CESGs are calculated on the basis of 20% of each contribution up to a maximum lifetime limit of $7,200. From 1998 to 2006 inclusive, the maximum annual contribution eligible for the 20% grant was $2,000, to a maximum annual grant awarded of $400. For years from 2007 onward, the maximum annual contribution eligible for the 20% grant is $2,500, to a maximum annual grant awarded of $500. To calculate the unused grant room in an RESP, count the number of years the beneficiary was alive (and a resident of Canada) from 1998 to 2006, and again from 2007 on. Multiply the number of years of eligibility from 1998 to 2006 by $400, and the number of years from 2007 on by $500. Add the two numbers together. The result is the maximum grant room for which the beneficiary would qualify. Any amounts of grant that have already been awarded must be subtracted from the result. 7.7 What if a beneficiary does not attend a post-secondary educational institution?

There are a number of options:

¡ The maximum annual contribution eligible for the 20% grant is $2,500, to a maximum annual grant awarded of $500. Example: If the total amount of grant money paid into a family RESP for three beneficiaries was $18,000, and one of the students decided not to further their education, the most CESG that could be used by the remaining Beneficiaries is $14,400 ($7,200 x 2 students). The remaining $3,600

Registered Education Savings Plan Information Booklet

¡ If the sibling and age requirements cannot be met, then beneficiary replacement is not permitted unless your plan is an individual plan for which CESGs have never been claimed. Under these unusual circumstances, anyone may be designated as a replacement beneficiary. ¡ Instead of replacing a beneficiary, you could elect an Accumulated Income Payment. This would mean that you terminate the plan, receive a refund of contributions, and refund any CESGs to HRSDC. Please refer to Section 12 for details.

8. INVESTMENT FUNDS 8.1 What are the investment options?

Within your PH&N RESP, you may hold any PH&N investment funds currently offered for sale and detailed in our current simplified prospectus. ¡ Important information about the investment funds is contained in their simplified prospectus. Please obtain a copy from us and read it carefully before investing. Unit values and investment fund returns will fluctuate. ¡ CESGs are invested in the same funds as the contribution that attracted the grant on a pro-rata basis. ¡ All contributions, redemptions and switches of Fund units will be made in accordance with the terms and conditions applicable to all investors in the Funds, except that we may establish different minimum investment requirements for RESPs (currently $1,000). ¡ You will receive annual and other periodic reports and prospectuses of the Funds as required by law. ¡ All distributions in respect of units of a Fund held by the Plan will be automatically reinvested in additional units of the Fund unless instructed otherwise. 8.2 Are there any foreign content restrictions?

There are no foreign content restrictions for RESPs.

7

9. RESP TRANSFERS 9.1 Are RESPs transferable?

Yes, beneficiaries and plan assets can be transferred between different RESPs: ¡ You can transfer between RESPs issued by different financial institutions if the terms of the relinquishing plan permit transfers. ¡ Transfers (and contributions) cannot be made after the 21st year following the initial year.

9.4 Rules for transferring CESGs

CESGs are “eligible” to be transferred between plans (along with contributions and investment earnings) only if: ¡ at least one common beneficiary is present in both relinquishing and receiving plans; or if ¡ a beneficiary in the receiving plan is under 21 and is a brother or sister of a beneficiary in the relinquishing plan.

¡ You can transfer beneficiaries and assets from an individual plan to a family plan, or vice versa if they meet the age/relationship criteria in sections 3.3 and 4.

If the above criteria cannot be met, the subscriber’s potential tax consequences can be so punitive that the terms of our RESP do not permit “ineligible” beneficiary transfers.

¡ The subscribers to plans involved in a transfer can be different people provided there is a common beneficiary in both plans.

9.5 How to arrange transfers into your PH&N RESP

 For example, the assets of a grandparent’s RESP can be transferred to a plan subscribed to by the beneficiary’s parents where the same child has been designated as beneficiary. 9.2 Partial Transfers

Partial transfers are used to move a percentage of the assets and one or more beneficiaries from a relinquishing plan to a receiving plan. ¡ Both cash and PH&N funds in kind (e.g. from a selfdirected RESP) can be transferred. RESP capital, grants & earnings are considered transferred on a proportional basis without regard to the amounts contributed for a specific beneficiary. 9.3 Transfers can affect the start and end dates of your plan

Use caution when transferring assets from another RESP that was established prior to your receiving plan. ¡ The earliest of the initial years of the two plans involved in a transfer becomes the initial year of the receiving plan. ¡ The termination date of the receiving plan becomes December 31 of the 35th year after the initial year of the oldest of the plans involved in the transfer. Note: If the receiving plan has young beneficiaries in need of EAP support (as described in section 10.1) beyond the earlier termination date of the relinquishing plan, this may not be a prudent move.

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Please obtain and complete our ESP Transfer Form. This can be obtained by calling our Investment Funds Centre, or by downloading and printing a copy from the RESP section of our website. The form will take you through the steps outlined above to determine eligibility for transferring grants along with contributions and investment earnings. Please send the form to us for processing. We will forward a copy to the relinquishing institution and ask them to complete their portion of the form and then return one copy with their trustee’s cheque to us. We will invest the proceeds in accordance with your instructions and send you a confirmation of the transaction.

10. EDUCATIONAL ASSISTANCE PAYMENTS 10.1 What are Educational Assistance Payments (EAPs)?

An Educational Assistance Payment (EAP) assists a beneficiary with costs of post-secondary education. ¡ Distributed to a beneficiary from your RESP grants and investment earnings on a pro-rata basis. ¡ For both individual plans and family plans, the only limiting factor is that the plan must be terminated by the end of the 35th year after the initial year. ¡ EAPs are taxed as income to the student beneficiary on an “as paid” basis. ¡ CESG portion of an EAP would be nil if the EAP is for a beneficiary who is non-resident for Canadian income tax purposes, or if the beneficiary was designated after attaining age 21, or if the plan was never eligible to receive grants.

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¡ Payments to cover tuition fees, room & board, transportation and computer/school supplies all qualify as eligible educational expenses under HRSDC guidelines. 10.2 How soon can you apply to start payments for beneficiaries?

You can apply for payments as soon as a beneficiary enrolled as a student in a qualifying educational program at a post-secondary educational institution. Payments to support a beneficiary’s education are drawn from your contributions and from a combination of investment earnings and grants known as Educational Assistance Payments (EAPs). Because refunds of contributions are tax-free and the EAPs are taxable to the beneficiary, you are required to indicate how much of each type of payment you need. (Refunds of Contributions are covered in section 11 below.) You can instruct us to make payments to either the educational institution, to yourself, or directly to the beneficiary. Beneficiaries do not have authority to authorize payments – only you, the subscriber, can do that (by completing our ESP Payments Request Form). 10.3 Are there any limits on EAPs?

A number of limitations do exist: ¡ There is a lifetime limit of $7,200 in respect to the CESG portion of EAPs that can be paid out for any beneficiary from all RESPs in which he/she may be a beneficiary with the same or different financial institutions. This limit does not extend to investment earnings on grants and contributions, or to refunds of contributions. ¡ Until a beneficiary has completed the first 13 consecutive weeks of an eligible program, the EAP portion is limited to $5,000 (toward the cost of the first semester). ¡ Note that there are no limits placed on refunds of contributions made in conjunction with and for the same purpose as EAPs. 10.4 Are part-time students eligible for EAPs?

¡ The EAP portion is available for part-time postsecondary students who are at least 16 years of age and spend at least 12 hours per month on courses: students will be able to receive up to $2,500 of EAPs for each 13-week semester of part-time study. 10.5 What happens when a beneficiary attends a foreign university?

Payments in respect of a beneficiary who is in full time attendance at a foreign post-secondary educational institution are subject to the same qualifications as if the student was taking the same courses in Canada. ¡ The EAP portion is available for part-time study in a foreign educational institution for programs at least 13 weeks in length. ¡ Prior to requesting an EAP, subscribers should determine if a beneficiary has ceased to be considered a resident of Canada for income tax purposes. In the event that nonresident status is established, an EAP can be requested, but payment will be made on the basis that the CESG portion will be nil. This means that EAPs will consist entirely of investment earnings, but have no actual CESG content while the beneficiary remains a nonCanadian resident. ¡ Your local tax services office of the Canada Revenue Agency has a current list of “approved” foreign educational institutions that can be referenced. 10.6 How do you apply for EAPs?

Section 2 of our ESP Payments Request Form needs to be completed. ¡ Our ESP Payment Request Form may be obtained by calling our Investment Funds Centre, or downloading the form from the RESP section of our website. ¡ Please complete one form for each payment for each beneficiary. The form takes you through a number of qualifying questions, including the points listed above, to determine the beneficiary’s eligibility for EAPs under the governing legislation. ¡ Proof of the beneficiary’s enrollment in a qualified post-secondary program will be required. The proof, in writing, must note the student’s name, the name of the institution that the student is attending, the student’s identification number and the study period. ¡ In most cases, you will probably want to apply for a taxfree refund of contributions to “top up” the taxable EAP for the beneficiary at the same time (please see section 11.1 below).

11. REFUNDS OF CONTRIBUTIONS Under the RESP program it is expected that you will make provision to cover beneficiaries’ educational costs from both Educational Assistance Payments and Refunds of Contributions. A refund of contributions is easy to arrange

¡ The requirements to qualify for Educational Assistance

Registered Education Savings Plan Information Booklet

9

at the same time as an EAP and is considered a tax-free withdrawal by the Canada Revenue Agency.

¡ The application may also be obtained by downloading a copy from the RESP section of our website.

11.1 Topping Up an Educational Assistance Payment

¡ Please seek assistance from our Investment Funds Centre if you have any questions.

Provided at least one beneficiary is currently eligible to receive EAPs in the plan, you can request a tax-free refund of contributions to assist a beneficiary with post-secondary education, or for non-educational purposes. 11.2 Refunds for non-educational purposes

If a beneficiary is not currently eligible to receive EAPs, a tax-free refund of contributions is still possible, but is subject to these conditions: Pre-determined order of refund of contributions:

¡ Contributions assisted by CESGs are considered to be refunded before unassisted contributions (i.e. those made after age 18, or before 1998). ¡ Unassisted contributions made after 1997 are considered refunded before unassisted contributions made before 1998. Refund of “Assisted Contributions”:

Where assisted contributions are being refunded and no beneficiary under the plan is eligible to receive an EAP, you must repay to HRSDC an amount equal to the lesser of: ¡ 20% of the amount of the refund, or ¡ Any balance, at the time of the refund, in the grant account of the RESP. Refund of post-1997 “Unassisted Contributions”:

¡ No complications (e.g. contributions made after the beneficiary’s age 18). Refund of pre-1998 “Unassisted Contributions”:

¡ Beneficiaries become ineligible to receive new CESGs for the balance of the current year and for the next two years; and ¡ Ineligible beneficiaries do not accumulate grant room during this period. These rules are intended to prevent re-cycling of old contributions to obtain grants. This would not be a concern for beneficiaries older than 18 years. 11.3 How to apply for a refund of contributions

¡ Ask us for a copy of our ESP Payment Request Form and complete Section B.

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12. ACCUMULATED INCOME PAYMENT 12.1 What is an Accumulated Income Payment (AIP)?

An AIP is a refund of taxable investment earnings on contributions and grants, usually to the subscriber. To qualify as a recipient of an AIP under your RESP all three of these conditions must be met: ¡ Each beneficiary for whom contributions were made has reached 21 years of age and is not currently eligible to receive EAPs, or has died; and ¡ The RESP has been in existence for at least 9 calendar years following the year in which the plan was entered into; and ¡ The recipient is both a subscriber to the plan and a resident of Canada for taxation purposes, or the subscriber has died and the recipient is any other person. Notes: ¡ If a transfer was made to your PH&N RESP from another RESP that was established earlier, your PH&N RESP is considered to have been established at that earlier date. ¡ In the event that all the beneficiaries are deceased, the 9-year qualifying period still applies unless each beneficiary was a subscriber, was related to the subscriber by blood or adoption, or was the nephew, niece, great nephew or great niece of the subscriber. ¡ Canada Revenue Agency can waive the conditions regarding the age of the beneficiaries and the amount of time the RESP has been in existence if a beneficiary is disabled. Should this be the case, please provide us with written evidence of the disability and we will apply for the waiver on your behalf. ¡ An AIP causes automatic termination of your PH&N RESP at the time of the payment. Upon special request, the termination of your plan can be delayed until the end of February of the year following the payment. ¡ An AIP triggers a refund of any residual CESGs to HRSDC.

Phillips, Hager & North Investment Management

¡ The AIP distribution may only be made to one person, even though there may have been joint subscribers (which can be an income splitting opportunity). However, TWO separate payments are permitted — one to each joint subscriber. ¡ Payments can be split — one this year and one next January or February to straddle adjacent tax years. AIP Cash Option

An AIP is subject to assessment of income tax in the hands of the recipient: Withholding tax rates

Composite Rate for Canadian Taxpayers (Excluding Residents of Quebec)

Quebec

30% on up to $5,000

33%

40% on next $10,000

42%

50% on excess

47%

AIPs are added to your taxable income during the year of receipt and are subject to income tax at your top marginal rate, plus a 20% Additional Tax on Accumulated Income Payments From RESPs. This additional tax seems to have been created to ensure taxpayers do not set up RESPs simply to take advantage of the opportunity for tax-deferral. Note: The top tax rate for an AIP is in the region of 65-70% for most Canadian provinces. For more information you could review the CRA website and download form T1172 Additional Tax on Accumulated Income Payments from RESPs from http://www.cra-arc.gc.ca/E/pbg/tf/t1172/t1172-06e.pdf and this can be filed with your income tax return. 12.2 Can you roll an AIP into an RRSP?

Yes, if the AIP recipient is the original subscriber, or the spouse, former spouse, or common-law partner or former common-law partner of a deceased original subscriber, and the AIP is rolled over to the recipient’s RRSP, or to the recipient’s spousal RRSP; and provided the recipient has sufficient RRSP deduction room in the year the payment is received; and the amount of the AIP to be rolled over does not exceed $50,000, then the recipient completes form T1171 Tax Withholding Waiver on Accumulated Income Payments from RESPs to waive withholding tax on the amount rolled over.

For more information you should review the CRA website to download form T1171 from: http://www.cra-arc.gc.ca/E/pbg/tf/t1171/t1171-06e.pdf and this can be filed with your income tax return. Note: The RESP rules do not change the RRSP or RRIF rules in any way. In particular, additional tax on AIPs applies to the amount of an AIP included in a taxpayer’s income minus the amount deducted by the taxpayer under the normal RRSP deduction rules (contributions to the taxpayer’s RRSP or to a spousal RRSP), subject to a cumulative $50,000 limit. Since contributions cannot be made to a taxpayer’s RRSP after the year in which the taxpayer reaches age 71, a taxpayer cannot avoid the additional tax on AIPs by making a contribution to his or her RRSP after that year. If the taxpayer’s spouse or common-law partner is under age 71 (more accurately, has not reached age 71 at the start of the year), a contribution could be made to the spouse’s or common-law partner’s RRSP. There is no provision to roll an AIP into a RRIF. 12.3 How do you apply for AIPs?

Section 4 of our RESP Payment Request Form needs to be completed. ¡ Our RESP Payment Request Form may be obtained by calling our Investment Funds Centre, or by downloading the form from the RESP section of our website. ¡ Please consult with our Investment Funds Centre to ensure you have the most current information on your options and that you have a clear understanding of them.

13 DESIGNATED EDUCATIONAL INSTITUTION PAYMENT 13.1 What is a designated Educational Institution Payment?

A payment of residual investment earnings upon termination of your plan. If your plan is terminated prior to 9th year after the initial year: ¡ You forfeit your rights to access any residual investment earnings in your plan. ¡ Residual investment earnings MUST be paid to a designated educational institution. (Such payments would not be taxable in the hands of a subscriber.) ¡ Termination will also trigger a refund of grants to HRSDC (which have prior charge on the plan). ¡ We will refund any residual contributions to you upon plan termination.

Registered Education Savings Plan Information Booklet

11

If your plan is terminated after the 9th year following the initial year:

15 PLAN TERMINATION

¡ Rather than elect an AIP, or an RRSP rollover, you can donate any residual investment earnings to a designated educational institution in Canada. (Such payments would not be taxable in the hands of a subscriber.)

The plan will terminate on the earliest of the following dates:

¡ At maturity, in the absence of any other instruction, residual investment earnings will be paid to the designated educational institution indicated on your Account Application. 13.2 How do you apply for a designated Educational Institution Payment?

Section 5 of our RESP Payment Request Form needs to be completed. Our ESP Payments Request Form may be obtained by calling our Investment Funds Centre, or by downloading the form from the RESP section of our website.

14 IN THE EVENT OF A PREMATURE DEATH 14.1 What happens if a beneficiary dies?

There are a number of options:

¡ If a surviving beneficiary remains in a family plan, the death of another beneficiary has no impact upon the plan. The survivor(s) may benefit from all family plan contributions, and earnings, plus grants up to a CESG limit of $7,200 per beneficiary. ¡ If there is no surviving beneficiary in the plan, you should appoint another qualifying beneficiary (if possible). ¡ If there were no qualifying beneficiaries in the family, you could terminate the plan by refunding grants to HRSDC and taking an AIP (RRSP rollover), plus a refund of contributions. 14.2 What happens If a subscriber dies?

These options would be available:

¡ If your plan was a joint plan, the joint tenancy relationship leaves the surviving joint subscriber as the sole subscriber, except in Quebec where the next rule applies. ¡ If your plan was not a joint plan, or if you were a resident of Quebec, your executor would become the subscriber with rights to continue the plan. The executor also has the power to appoint a new subscriber (e.g. a guardian) to your plan. In other words, the person who continues to make contributions to the plan normally becomes the replacement subscriber. 12

15.1 Events that trigger Plan Termination

¡ a date designated by you in your Account Application for a PH&N Education Savings Plan, or earlier if requested; ¡ the last day of the 35th year after the initial year; ¡ if an Accumulated Income Payment has been made from the Plan at the time of the payment, or the last day of February of the year following, if so requested; and ¡ if the registration of the Plan under the Tax Act is revoked. In addition, if you elect a payment to a designated educational institution (other than an EAP), the plan would normally be terminated at the same time. Likewise, following the death of all eligible beneficiaries, you may elect to terminate the plan. 15.2 Events that form part of a Termination

¡ Any residual grants are refunded to HRSDC. (CESGs have a prior charge on plan assets.) ¡ Any residual contributions are refunded to you. ¡ Any residual investment earnings are donated to a Designated Educational Institution. (In practice, prior to electing termination, you may have qualified to have any residual investment earnings paid to you as an AIP and rolled into your RRSP as described in section 12.2.)

16. RESP TAX TREATMENT 16.1 How are RESPs taxed?

Accumulated Income Payments (AIPs) are added to your taxable income during the year of receipt and are subject to income tax at your top marginal rate, plus a 20% Additional Tax on Accumulated Income Payments From RESPs. This additional tax appears to have been created to ensure taxpayers do not set up RESPs simply to take advantage of the opportunity for tax-deferral. Canada Education Savings Grants (CESGs) are not considered as taxable income to subscribers or to beneficiaries by the federal government at the time they are contributed to the plan. Contributions are not tax deductible from personal income when made by subscribers, nor taxable when withdrawn.

Phillips, Hager & North Investment Management

Educational Assistance Payments, consisting of grants and investment earnings, are taxable in the hands of student beneficiaries upon distribution. We will issue the necessary T4A income tax slips to each beneficiary.

income on the basis that a gift was made (effective income splitting), the CRA may decide the gift was not genuine and may reassess the parents for the taxable capital gains on a retroactive basis.

Investment Earnings consisting of interest, dividends or capital gains earned by RESP assets, including contributions and CESGs, are tax sheltered while they remain in the plan.

A possible solution might be to have a parent or guardian complete an application for an individual RESP on behalf of the minor who then makes contributions to his/her plan under which he/she is also the beneficiary (minors cannot enter into contracts). Once the minor attains the age of majority, the parent/guardian relinquishes responsibility to act as subscriber under the contract. The now adult subscriber/beneficiary then finances his/her post-secondary education from the plan.

Refunds of Contributions are not subject to income tax in the hands of a recipient. Payments to a Designated Educational Institution are considered tax exempt in the hands of plan subscriber(s). 16.2 What are the implications of an overcontribution?

Canada Revenue Agency imposes a 1% per month penalty tax. All RESP transactions are reported to HRSDC who administer the grants and monitor limits for each beneficiary by SIN. They also keep track of each contribution made by each subscriber, and monitor the $50,000 lifetime contribution limit for each beneficiary. ¡ A subscriber who makes a contribution to a beneficiary in excess of the limits is liable to pay 1% per month penalty tax to CRA on the excess amount. ¡ The withdrawal of an over-contribution does NOT reduce the life-to-date contributions for a beneficiary. To report an over-contribution, a subscriber completes form T1E-OVP E (98) Individual Income Tax Return For RESP Overcontributions For 1996 And Future Years. For more information you can review the CRA website to download T1E-OVP e (06) from http://www.cra-arc. gc.ca/E/pbg/tf/t1e-ovp/t1e-ovp-06e.pdf and include this form with your income tax return. 16.3 Can informal trusts acquire an RESP?

An RESP subscriber must be a “person”, so trusts cannot establish RESPs. Notwithstanding this rule, keep in mind that if the informal trust belongs to the child, a transfer of funds to an RESP may be an indication that the original gift to the child was never made. There are two main reasons for this: ¡ an RESP puts a restriction on the distribution of funds to a beneficiary (for post-secondary education); and ¡ a subscriber to an RESP can obtain a refund of contributions. These features raise the potential risk that if capital gains were previously included in the child’s Registered Education Savings Plan Information Booklet

13

17. RESP Getting Started Checklist To get started you will need:

¡ Your

PH&N Client Account Number, or the name of your

Company Retirement Plan (a PH&N Client Account Number will be assigned to new clients).

¡ Your mailing address. ¡ The Date of Birth for each beneficiary. ¡ The

Social Insurance Number for each subscriber and for

each beneficiary.

¡ A cheque for at least $1,000 made out to RBC Dexia Investor Services Trust.

¡ The full name of each beneficiary’s custodial parent. RESP Documents to review:

¡ This ESP Information Booklet.

¡ Family, or Individual ESP Terms & Conditions. ¡ The Simplified Prospectus. ¡ The

Annual

Financial

Statements

for

our

Investment Funds.

Applications to complete:

¡ An Account Application for an Education Savings Plan. ¡ A Canada Education Savings Grant Application (you must fill out one CESG Application per beneficiary).

Optional extras:

¡ If you or a beneficiary do not have a Social Insurance Number (SIN), an Application to Human Resources and Social Development Canada (HRSDC) for a SIN*.

¡ If

you plan to transfer an RESP from another financial

institution to PH&N, you will need to complete our ESP Transfer Form. *Please obtain SINs before applying for an RESP. We will not be able to accept contributions or apply for grants without them.

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18. GLOSSARY OF TERMS Accumulated Income Payment (AIP) - Payments to the subscriber out of the plan’s investment earnings, including earnings on CESGs. Assisted Contributions - Contributions made to an RESP after 1997 in respect of which a CESG has been paid. Beneficiary - Individuals named by the subscriber who will receive Educational Assistance Payments when they qualify for these payments under the terms of the plan. Blood Relation - A “blood relation” as defined in the RESP legislation, is a person related by blood, marriage, or adoption and refers to grandparents, parents, their children, their grandchildren, or the brothers and sisters of the subscriber to the Plan. Stepchildren, step-grandchildren, stepparents, and stepgrandparents are all included. Canadian Residency for Tax Purposes - The Income Tax Act does not contain a definition of resident. The meaning of this term has been developed through case law. Broadly speaking an individual is resident in Canada for tax purposes if Canada is the place where the person, in the settled routine of life, normally lives. In making this determination, all of the relevant facts in each case must be considered. If you have any questions about your beneficiary’s, or your own residency, please refer to the Canada Revenue Agency or to your legal or accounting advisor. CESG, or Canada Education Savings Grant - A grant paid by Human Resources and Social Development Canada to the RESP trustee for deposit on behalf of the beneficiary. Designated Educational Institution means an educational institution in Canada that is a university, college or other educational institution: ¡ designated by the Lieutenant Governor in Council of a province as a specified educational institution under the Canada Student Loans Act, ¡ designated by an appropriate authority under the Canada Student Financial Assistance Act, ¡ or designated by the Minister of Higher Education and Science of the Province of Quebec for the purposes of An Act respecting financial assistance for students of the Province of Quebec. Education Assistance Payment (EAP) - Any amount paid or payable under an RESP to or for an individual (called the beneficiary) to assist with the individual’s education at the post-secondary school level. These amounts do not include refunds of contributions that are usually made to the subscriber of the plan for the purpose of assisting a beneficiary’s education at the same time.

Registered Education Savings Plan Information Booklet

Family Plan - An RESP that allows more than one beneficiary. All beneficiaries must be blood relations of the subscriber. Grant Contribution Room - Each child up to and including the age of 17, while a Canadian resident for tax purposes, begins to accumulate “grant contribution room” at a rate of $500/yr. HRSDC - Human Resources and Social Development Canada. A department of the Canadian Federal Government that administers the CESG program. Individual Plan - An RESP that permits only one beneficiary. The beneficiary does not have to be related to the subscriber. Initial Year - Means the calendar year in which the Plan is entered into except that, if an amount is transferred to the Plan from another RESP that was entered into before the Plan, it means the earliest of the calendar years in which each such RESP was entered into. Post-Secondary Educational Institution - means: a) a Designated Educational Institution, b) an educational institution in Canada that is certified by the Minister of Human Resources and Social Development to be an educational institution providing courses, other than courses designed for university credit, that furnish a person with skills for, or improve a person’s skills in, an occupation, c) an educational institution outside Canada that is a university, college or other educational institution that provides courses at a post-secondary school level at which a Beneficiary was enrolled in a course of not less than 13 consecutive weeks duration, or d) any other educational institution that is included in the definition of this term in subsection 146.1(1) of the Income Tax Act. Promoter - The Promoter can be any person/organization offering a Registered Education Savings Plan to the public. “Qualifying Educational Program” - Means a program of not less than 3 consecutive weeks duration that provides that each student taking the program spend not less than 10 hours per week on courses or work in the program, and that meets the following requirements: a) the program must be at the post-secondary school level or be taken at an educational institution referred to in paragraph b) of the definition of Post-Secondary Educational Institution, and b) if the Beneficiary takes the program during a period in respect of which the Beneficiary receives income from an office or employment, the program is not taken in connection with, or as part of the duties of, that office or employment. 15

Registered Education Savings Plan (RESP) - A contract between a subscriber and an RESP promoter under which the subscriber makes contributions on behalf of a beneficiary and the promoter agrees to make Educational Assistance Payments to the beneficiary. The RESP is registered under the Income Tax Act. “Specified Educational Program” – Means a program at a post-secondary school level that is at least 3 weeks in duration and involves at least 12 hours of courses per month. Subscriber - A person, including the subscriber’s spouse or common-law partner as a joint subscriber, who enters into an RESP contract with the promoter, is a subscriber. The subscriber agrees to contribute to the contract on behalf of individuals named under the plan as beneficiaries. Note: A Subscriber must be a person. Therefore, a corporation, trust, church, or charity cannot be a subscriber. Trustee - The Income Tax Act requires RESP funds to be held by a corporation licensed to be a trustee. We have engaged The Royal Trust Company as trustee for the PH&N RESP. The CESG payments are provided directly to the plan trustee by HRSDC. Unassisted Contributions - Contributions made to an RESP in respect of which no CESG has been paid.

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Phillips, Hager & North Investment Management

Phillips Hager & North Investment Management is an operating division of RBC Global Asset Management Inc. (RBC GAM), an indirect, whollyowned subsidiary of Royal Bank of Canada. RBC GAM is the manager and principal portfolio advisor of the PH&N Funds and the principal distributor of the Series O units of the Funds. “PH&N” and “Phillips, Hager & North” are registered trademarks of Royal Bank of Canada. Used under licence. “PH&N” and “Phillips, Hager & North” are registered trademarks of Royal Bank of Canada. “PH&N Investment Services” is a trademark of Royal Bank of Canada. Used under licence. The management fees and operating expenses associated with the PH&N Funds are paid by the respective fund. Copyright RBC Global Asset Management Inc., 2010. Publication date: April 1, 2010

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