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RESP: Plan smartly for your children's education future.
What is an RESP?
A registered education savings plan, or RESP, as it is commonly known, is a tax-deferred education savingsvehicle through which the federal government allows a subscriber to save money for a beneficiary’spost-secondary education (tuition, housing, books, etc).
Contributing to RESPs
The lifetime RESP contribution limit per beneficiary is $50,000, with no annual contribution limit.
To encourage education savings and give a boost to RESPs, the federal government introduced the Basic Canada Education Savings Grant (CESG) in 1998. The maximum annual RESP contribution that will qualify for the 20% CESG is $2,500, for a maximum $500 Basic CESG. The lifetime maximum of CESG that one beneficiary can receive is $7,200.
In order to be eligible for the Basic CESG, the beneficiary must be a Canadian resident at the time of the contribution, and the contributions must be made before the calendar year the beneficiary turns 18. In addition, certain conditions must be met for the beneficiary to receive Basic CESG in the calendar year the beneficiary turns 16 or 17 years old.
Additional CESG is a supplement to the Basic CESG, and the additional amount is based on the net family income of the child’s primary caregiver. The primary caregiver is the person who receives the Canada Child Tax Benefit (CCTB). The net family income is reported on the primary caregiver’s CCTB statement provided by Canada Revenue Agency (CRA) each July. The Additional CESG amount can change over time as the net family income changes.
If the net family income is below $37,885,: the Additional CESG will be 20% on the first $500 contributions made in a calendar year in the RESP. Lower income families may qualify for the Canada Lending Bond, an additional $2000.00.
If the net family income is between $37,885 and $75,769, the Additional CESG will be 10% on the first $500contributions made in a calendar year in the RESP.
A subscriber is the person who creates the RESP and who makes contributions – this could be anyone, for an individual RESP. However, if the RESP is a family plan, the beneficiaries must be related by blood or adopted by the subscriber. For this purpose, blood relationships include children, brothers, sisters, grandchildren and great-grandchildren, but not nieces or nephews.
A Social Insurance Number (SIN) must be provided for all subscribers and beneficiaries at the time that the RESP is started. To apply for a SIN, visit your local HRSDC office to pickup an application form. You can also download the form from HRSDC’s website at www.hrsdc.qc.ca under FORMS. You will need to provide an original birth certificate (or notarized copy) for each beneficiary. You do not need to mail in these documents if you present them at a HRSDC office. There is no fee for the initial SIN card.
Educational Assistance Payments from RESPs
Payments made to the beneficiary under an RESP are called Educational Assistance Payments (EAPs). EAPs consist of government grants and income earned on both contributions and government grants. The subscriber determines when and how much of the EAP should be paid out of the plan.
To qualify for EAPs, the beneficiary must be enrolled in a qualifying educational program. A qualifying educational program is defined as a post-secondary-level program of not less than three consecutive weeks and that requires each student in the program to spend at least 10 hours per week on courses or work in the program. Proof of enrollment from the beneficiary’s school is required.
EAP payments are taxable to the student, but only the portion that is originally a government grant or the earnings from the contributions.
Withdrawing Money from a RESP
There are two types of subscriber withdrawals – refund of contribution and accumulated income payments.
Please contact us for more information on all of the above.