Our Mailbag Answers to Client Letters about RESPs, the U.S. Market, Compound Interest, Taxes, Debt, and AI

We frequently receive similar inquiries. If a question comes up for you, chances are others are wondering about it as well. Of the emails and phone calls we receive each month, here are a handful of questions we pulled from our conversations.

What happens to my RESP if only one of my two children pursues a post secondary education?

If only one of your two children pursues post-secondary education, you will not lose your savings. You can redirect the plan’s funds to the child attending school. 

Under a Family RESP, the student can access all of your original contributions tax-free and draw from the account’s total investment growth as Educational Assistance Payments (EAPs), which are taxed at their low student tax rate. 

They can also use the non-attending sibling’s Canada Education Savings Grant (CESG) funds, provided the total CESG paid to the attending child does not exceed their individual lifetime maximum of $7,200. Any grant money that exceeds this lifetime limit must be returned to the government. 

Lastly, if any unused investment growth remains in the account afterward, you can withdraw your initial contributions tax-free and roll up to $50,000 of the remaining earnings into your RRSP tax-deferred (provided you have available RRSP room and meet eligibility criteria), or withdraw it as income subject to regular taxes plus a 20% penalty. 

What do you think about the U.S?

Although we’re experiencing heightened geopolitical tensions in the Middle East as well as trade uncertainties, corporate earnings remains remarkably strong. With Q3 recently wrapping up and reporting season about to begin, we’re expecting year-over-year profit growth to hit nearly 29%. This will mark the S&P 500’s third consecutive quarter of earnings growth above 25%. Given this growth rate, the market is not expensive. At a forward 12-month P/E ratio of 19.2, the S&P 500 sits below its 5-year average of 19.8 and only modestly above its 10-year average of 19.0.

If I gift $20,000 to my granddaughter, how much will it be worth when she’s 90?

For a 1-year-old granddaughter, the initial $20,000 gift has 89 years to compound until she turns 90, growing to $8,244,916 assuming a 7% compounded return. Assuming a 2.5% average annual inflation rate, the equivalent real buying power in today’s dollars would be approximately $915,700.

What is the T1135?

Form T1135, formally known as the Foreign Income Verification Statement, is an annual information return required by the Canada Revenue Agency for Canadian resident taxpayers—including individuals, corporations, trusts, and partnerships—who own specified foreign property with a total combined cost exceeding $100,000 CAD at any time during the tax year. 

This property includes funds in foreign bank accounts, shares of foreign corporations (even if held through a Canadian brokerage account), foreign real estate (excluding strictly personal-use property like a holiday home), and debts owed by non-residents.

Assets held inside registered tax-advantaged accounts such as a TFSA, RRSP, or RESP are exempt from reporting. 

The form requires taxpayers to disclose the details, maximum cost amount, and income generated by these foreign assets to ensure proper tax reporting, and failing to file it on time carries significant CRA penalties starting at $25 per day up to a maximum of $2,500 per year plus interest.

Should I use a line of credit at 4.75% or sell stocks to buy a car?

Deciding whether to use a line of credit at 4.75% or sell stocks to buy a car ultimately depends on your personal relationship with debt. From a purely mathematical standpoint, the stock market historically generates an average return of around 7% annually over the long run, which means paying an interest rate significantly below that threshold allows your capital to stay invested and grow. Additionally, liquidating equities in a taxable account can trigger immediate capital gains taxes, making low-cost borrowing even more attractive on paper by keeping your full portfolio compounding intact.

However, if owing money causes you anxiety and your primary goal is to be completely debt-free, paying down the balance or using cash may be the right choice even if the pure math suggests otherwise. It truly depends on who you are as an individual and how you view leverage, which is why discussing these personal trade-offs face to face is the best way to land on a strategy.

Is my portfolio exposed to AI?

Your portfolio has AI exposure far beyond obvious holdings like Nvidia and Alphabet (formerly known as Google). Running AI takes a massive amount of power and physical infrastructure, which means your utility and industrial holdings directly benefit from the AI buildout. For example, TC Energy transports the natural gas needed to generate power for data centers, while Aecon Group is building the facilities and nuclear projects that keep that electricity flowing. Instead of just owning semiconductor chip stocks, you own multiple beneficiaries from the AI expansion.

-written by Jeff Pollock