Altamira

Financial Planning / Altamira Investment Solutions

Registered Education Savings Plan (RESP)

Plan Types | Canada Education Savings Grant (CESG) | CESG Restrictions |
Other Canada Education Saving Program Initiatives | Withdrawal Options |
Related Resources
RESP Declaration of Trust RESP Investment Strategies RESP Calculator RESP,CESG and CLB Application forms CESG Calculator

An ideal way to save for a loved one's education is to start a Registered Education Savings Plan (RESP).   An RESP is a tax-sheltered investment vehicle, specifically designed to assist parents, grandparents or others (referred to as subscribers) in accumulating savings for their children's or loved ones' (referred to as beneficiaries) education.  Once the intended beneficiary begins a full time college, university or trade school program, payments to the student can be made from those funds accumulated in the RESP.

How much can I contribute each year?

The $4,000 annual RESP contribution limit has been eliminated, and the lifetime RESP contribution limit has increased to $50,000 from $42,000.

Are RESP contributions tax-deductible?

No.  Unlike a Registered Retirement Savings Plan (RRSP), there is no tax deduction for RESP contributions.  However, taxes payable on RESP contribution earnings (both the grant and all income earned) are deferred until accessed by the beneficiary.  And, since students receiving RESP payments typically have little or no income, they ultimately owe little or no tax on the payments they receive.

RESPs must be closed out by the end of the twenty-fifth year after the one in which the plan was established.

 

Plan Types

In most cases it is a parent or grandparent who sets up the RESP, but other parties are able to establish a plan on someone's behalf.  There are two types of RESP - the Family Plan and the Non-Family Plan. 

Family Plans

Family Plans can have multiple beneficiaries (or just one), subject to the condition that there be a blood relationship (as defined by the Income Tax Act) between the subscriber and all beneficiaries.  Note that parents, grandparents and adoptive parents are all considered blood relationships.  For plans with multiple beneficiaries there are no withdrawal shares, meaning that one can use money that was contributed for another in the event their program is more costly or the other(s) decide(s) against post-secondary education.  In addition, beneficiaries can be added at a later date and new beneficiaries can replace existing ones at any time, provided they are deemed eligible.* 

Non-Family Plans

Non-Family Plans can have only one beneficiary, but there is no blood relationship requirement.  This form of plan enables relatives such as aunts, uncles or god parents to set up a plan on someone's behalf.  As indicated above, a new beneficiary can replace the existing one at any time, provided they are deemed eligible.* 

* The subscriber(s) and beneficiary(ies) must have their Social Insurance Numbers on file, as well as be resident in Canada. 

 

Canada Education Savings Grant (CESG)    To top

The Federal Government introduced the CESG in 1998. Recent changes to the Canada Education Savings Grant make RESPs even more attractive. Human Resources and Skills Development Canada is responsible for administering the CESG program.

CESG eligibility requires the beneficiary to have a Social Insurance Number (SIN) on file with the RESP provider, be resident in Canada, while the subscriber must have authorized the provider to apply for the Grant on their behalf via an election form. 

The maximum annual RESP contribution qualifying for the 20-percent CESG has increased to $2,500 from $2,000, thus increasing the maximum annual CESG per beneficiary for 2007 and subsequent years to $500 from $400. The lifetime CESG limit of $7,200 will be unaffected by this change.

Basic CESG
Eligibility Maximum annual CESG entitlement

 

The CES Grant is paid annually at a rate of 20% of the first $2,500 contributed per eligible beneficiary, with a lifetime maximum of $7,200 per beneficiary.
Basic Grant
RESP Contribution: $ 2500 (first $2500)
CESG (20%): X .20
CESG: $ 500
Total available grant: $500 (per year)

Additional CESG
Eligibility on the basis of income Maximum annual CESG entitlement

If caregiver income is less than $37,885**

An additional CES Grant of 40% on the first $500 contributed to an RESP will be paid over and above the 20% CESG, for a total available grant of $700 for a $2500 annual RESP contribution. The lifetime maximum of $7,200 per beneficiary still applies.
Basic Grant ($500):
RESP Contribution: $ 2500 (first $2500)
CESG (20%): X .20
CESG: $ 500
 
Additional Grant ($200):
RESP Contribution: $ 500 (first $500 of above)
CESG: (40%) X .40
CESG: $ 200
Total available grant: $700 (per year)

If caregiver income is between $37,885 and $75,769**

An additional CES Grant of 30% on the first $500 contributed to an RESP will be paid over and above the 20% CESG, for a total available grant of $650 for a $2,500 annual RESP contribution. The lifetime maximum of $7,200 per beneficiary still applies.
Basic Grant ($500):
RESP Contribution: $ 2500 (first $2500)
CESG (20%): X .20
CESG: $ 500
 
Additional Grant ($150):
RESP Contribution: $ 500 (first $500 of above)
CESG (30%): X .30
CESG: $ 150
Total available grant: $650 (per year)

If caregiver income is greater than $75,769**

The CES Grant remains the same at 20% on the first $2500 contributed to an RESP, for a total available grant of $500 for a $2,500 annual RESP contribution. The lifetime maximum of $7,200 per beneficiary still applies.

When a beneficiary has unused grant room there is the possibility for up to two full years' entitlement to be paid in a single calendar year. Every RESP beneficiary is entitled to the annual $500 in Grant money, which can be collected in the future if no contributions are made OR less than $2,500 is contributed in any one year (some restrictions apply, see CESG Restrictions). Please contact an Altamira Advisor at 1-866-351-6925 (in Toronto at 416-507-7050) or e-mail us for additional information on the CESG Program.

Eligibility for the additional CESG will be determined by the Canada Education Saving Program (CESP). In order for the beneficiary to become eligible to receive the additional CESG, the subscriber will be required to fill out an application form for Canada education savings incentives that will provide the primary caregiver information and signature. On this application, the subscriber will also be required to attest that all beneficiaries in the plan are siblings only.

** The income range will be indexed each year.

 

CESG Restrictions    To top

Beneficiaries 16 or 17 years of age are only eligible to receive the CESG if :

  • RESP contributions totalling at least $100 annually were made in any four years prior to the year the beneficiary reached age 16; or
  • RESP contributions totalling a minimum of $2,500 were invested prior to the year in which the beneficiary reached age 16.

In both cases, the contributions may not be withdrawn prior to payment of the grant.

 

Other Canada Education Saving Program Initiatives    To top

In addition to the changes made to the CESG program, two new initiatives offered by the Canada Education Saving Program are:

Eligibility Grant details

The Canada Learning Bond (CLB)

Caregiver must be eligible to receive the National Child Benefit. Beneficiary must be born on or after January 1, 2004.

A one-time grant of $500, followed by the 15 annual installments of $100 each year until the beneficiary designated under the RESP reaches age 16, will be available if the primary caregiver is eligible to receive the National Child Benefit. This applies to children born on or after January 1, 2004. If you qualify, you could receive as much as $2,000 to fund your child's education. No contribution is required on your part, providing you meet the criteria for the National Child Benefit.

Eligibility for the CLB will be determined by the CESP. In order for the beneficiary to become eligible to receive the CLB, the subscriber will be required to fill out an application form for Canada education savings incentives that will provide the primary caregiver information and signature. On this application, the subscriber will also be required to attest that all beneficiaries in the plan are siblings only.

Alberta Centennial Education Savings Grant (ACES)

Beneficiary is born to, or adopted by, Alberta residents on or after January 1, 2005.

A $500 one-time grant available for children born to, or adopted by, Alberta residents on or after January 1, 2005. Subsequent $100 grants will be awarded at ages 8, 11 and 14 for a total of $800 towards a child's education. No contribution is required to receive the $500 grant. Application Form.

Withdrawal Options    To top

The Plan must be collapsed by the end of the twenty-fifth year following the year in which it was opened. Options for withdrawing the money held in an RESP include the following:

Educational Assistance Payments (EAP) will be made to the beneficiary in keeping with the subscriber's instructions, subject to certain conditions during the first thirteen weeks of most full time programs.  Proof of current enrolment in a qualifying post-secondary program is required before an EAP can be made, as well as a completed RESP Redemption Form.  EAPs are considered taxable income for the student.

A post-secondary education (PSE) capital withdrawal can be made upon proof of current enrolment in a qualifying post-secondary program and the subscriber authorizes withdrawal of capital from the plan. PSE withdrawals are not considered taxable income.

A withdrawal of capital for non-educational purposes may cause the RESP to become "tainted".  Any CESG received for that year must be returned to HRSDC and possibly no Grant payments will be made for the following two years.  There are no tax consequences associated with a withdrawal of capital. 

Accumulated Income Payments (AIPs) can be requested in the event that a non-family plan beneficiary or all listed family plan beneficiaries decide against post-secondary studies. Two AIP options are available:

  1. up to $50,000 can be transferred to the subscriber's regular or spousal RRSP (or both subscribers in the case of joint accounts) if there is sufficient contribution room available in the RRSP(s).
  2. a withdrawal of income by the subscriber for non-educational purposes is subject to a 20% surcharge on top of regular income taxes.

In addition, all grant money must be returned to HRSDC and the RESP must be terminated by March 1st of the following year.

The availability of these options are subject to these conditions:

  1. all beneficiaries are 21 years of age or older;
  2. the RESP has been in existence for at least 10 years;
  3. the subscriber must be a Canadian resident.

Please contact an Altamira Advisor at 1 888 ALTAMIRA (1 888 258-2647) or e-mail us for additional information on the CESP initiatives.