Registered Education Savings Plan (RESP)

Written by Darren Buma, CPA, CA on May. 14, 2019

An RESP is an education savings account that is registered with the Government of Canada that helps you save for a child’s or grandchild’s post-secondary education.

With an RESP, you may be able to receive other saving incentives, such as the:

There are two different types of RESPs available:

  • Family plans: are the only RESPs that allow subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each living subscriber or have been so tied to a deceased original subscriber.
  • Specified plans: are essentially a single beneficiary RESP (non-family plan) under which the beneficiary is entitled to the disability tax credit for the beneficiary’s tax year that includes the 31st anniversary of the plan. Furthermore, a specified plan cannot permit another individual to be designated as a beneficiary under the RESP at any time after the end of the year that includes the 35th anniversary of the plan.

An RESP is a contract between an individual (the subscriber) and a person or organization (the promoter).

Under the contract, the subscriber names one or more beneficiaries (the future student) and agrees to make contributions for them, and the promoter agrees to pay educational assistance payments (EAPs) to the beneficiaries.

Eligibility

Applicants must meet the following criteria:

How an RESP works

The subscriber (or a person acting for the subscriber) generally makes contributions to the RESP. Subscribers cannot deduct their contributions for tax purposes.

The promoter usually pays the contributions, and the income earned on those contributions, to the beneficiaries. The income earned is paid as educational assistance payments (EAPs).

If the contributions are not paid out to the beneficiary, the promoter usually pays them to the subscriber at the end of the contract. Subscribers do not have to include the contributions in their income when they get them back.

RESP contributions rules

You can contribute to family plans for beneficiaries who are under 21 years of age at the time of the contribution. However, transfers can be made from another family plan even if one or more of the beneficiaries are 21 years of age or older at the time of the transfer.

For specified plans, no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 35th anniversary of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the plan.

RESP contributions cannot be deducted from your income on your income tax and benefit return. In addition, you cannot deduct the interest you paid on money you borrowed to contribute to an RESP.

Contribution limits

There are limits on the amounts that can be contributed to all RESPs for a beneficiary.

For each beneficiary, the annual limit is:

  • for 1996 is $2,000;
  • for 1997 to 2006 is $4,000; and
  • for 2007 and subsequent years, there is no limit.

For each beneficiary, the lifetime limit is:

  • for 1996 to 2006 is $42,000; and
  • for 2007 and subsequent years is $50,000

Canada Education Savings Grant (CESG) – matching of contributions

The government of Canada will match your savings inside an RESP. This matching is called the Canada Education Savings Grant. The grant has two parts:

  • Basic Canada Education Savings Grant – this grant will give you 20% on every dollar of the first $2,500 you save in your child’s RESP each year.
  • Additional Canada Education Savings Grant – Depending on your net family income, you could receive an extra 10% or 20% on every dollar on the first $500 you save in your child’s RESP each year.

Anyone can contribute to an RESP for any child; you do not have to be the parent.

The maximum lifetime grant the Government of Canada can give your child through the Canada Education Savings Grant is $7,200.

Your child can use the money for full-time or part-time studies in an apprenticeship program, CEGEP, trade school, college or university.

RESPs can be an effective tool but also need to be used in the right circumstances and are not for every person or family. We suggest you contact us at 780.466.6204, or click here to send us an email to discuss whether this option is right for you.

Thanks to Darren Buma of KWB Chartered Accountants for providing this content.

Darren Buma, CPA, CA

Darren Buma, CPA, CA

Partner

Darren has a passion for small business and loves to work with both budding and experienced entrepreneurs. After articling with KPMG and receiving his Chartered Accountant designation, he left to explore the world of small business. What he was expecting to be a short exercise turned into nine years of excitement. During that time he helped to grow and operate a variety of private companies in both commercial real estate development and computer software development.

In 2004 Darren joined KWB so that he could have the best of both worlds, running a small entrepreneurial firm and being in a position to help entrepreneurs like you, grow your business and secure your future. He became a partner at KWB in 2007. His knowledge and advice isn't just academic, Darren lives the roller coaster of entrepreneurship that you ride every day.

Aside from his responsibilities at work, Darren is active in the community. He is a past Chair of the Edmonton Chapter of Financial Executives Canada, sits on the disciplinary tribunal roster for the Institute of Chartered Accountants of Alberta, and is active in minor hockey both as Treasurer for his local hockey association as well as coaching numerous hockey teams over the years.

Darren's Contact Information

Other Posts by Darren

Sep 10 2013
Economic Update on U.S Interest Rates

Are you interested in what is happening with interest rates in the U.S.? Here is a quick and easy to understand summary.

Feb 19 2019
Disaster Recovery 101

Terrible devastation caused by flooding or fires is a potent reminder that one should not delay planning for disasters in advance. Learn how to approach designing your own Disaster Recovery Plan (DRP).

Jul 19 2013
Once in a Blue Moon

I recently read an excellent article about a rare economic occurrence that was happening this past June. To help you find out more about this rare economic occurrence, here is the full article prepared by Wealth Stewards Portfolio Management Inc. (WSPM)

Jun 26 2018
TFSA

If one of your New Year’s resolutions was to save more money, then the Tax-Free Savings Account (TFSA) may be a good option for you to use. Learn more about the TFSA rules and limits.

May 30 2017
RRSP Contribution Room

RRSP’s can be a simple concept but they are also governed by some complex rules. Learn more about how your annual contribution limits are calculated and what to do if you have over contributed.

Jul 27 2012
The Value of Advice

What is the value of advice? When it comes to portfolio management, the overall value of the advice can be measured by comparing the performance of one portfolio over another in a specific amount of time. However, when it comes to wealth management, the overall value of the advice discussed regularly with clients is much more difficult to measure. Read on to see some real life examples of the value of the advice given.

Apr 15 2014
2014 Tax Filing Deadline

We would like to remind our clients that for the majority of Canadians, your personal income tax returns normally need to be filed by April 30. If you haven’t already brought us the information we need to prepare your return, we would ask you to do so shortly. CRA has extended the filing and payment

Jun 24 2014
Online Backups - Keeping it simple

Do you know someone who has lost critical and precious information that was stored on their computer? Are there things on your computer that you don’t want to lose such as financial or business records or personal information like family photos? We live in a digital world and we don’t have hard copies of anything

Jul 15 2014
Guide for setting up your business

The following checklist has been prepared to assist you with the steps required and other points to consider when setting up your business. This checklist is not all encompassing, but one tool to help identify key issues that need to be addressed and considered. In addition, we recommend reading Canada Revenue Agency’s (CRA’s) guide "RC4070

Nov 4 2014
FACTA Bank Reporting Requirements

Beginning in July of 2014, Canadian financial institutions will be required to start gathering and reporting information on accounts held by U.S. residents and U.S. citizens, including those who are resident of Canada. The account information will be collected and reported to the Canada Revenue Agency (CRA), who will then transfer the information

Jun 18 2019
Principal Residence Exemption

If you have sold your home and it is your principal residence then you should be able to use the principal residence exemption to reduce or eliminate any capital gain for income tax purposes on the sale of the property. CRA states that a principal residence can be a house, cottage, condominium, apartment, trailer, mobile

Sep 15 2015
Chartered Professional Accountants: It’s all in the name

On July 31, 2015 legislation in Alberta came into effect that will govern all professional accountants under one organization and one brand:  Chartered Professional Accountants or CPA for short. Prior to this change, you would have found Chartered Accountants (CA’s), Certified Management Accountants (CMA’s) and Certified General Accountants (CGA’s) all practicing in Alberta.  Although

Jul 2 2019
New Business Guide for setting up your business

If you are starting a new business in Canada or are operating one already, then this article is for you. Types of business structures The type of structure you choose has a significant effect on the way you report your income, the type of returns you file each year, and many other matters. The three

Oct 9 2018
Strategic Planning

What if you knew the impact of an important decision before you made it? Could you and your business benefit from this “what if” strategic planning? You would be able to look at the potential outcome and financial impact of business decisions before they are made. At KWB we use software called Profit Driver to

Apr 30 2019
Dividends

What’s the difference between eligible and non-eligible dividends?  What are the implications to you? Dividends are payments made to shareholders to allocate the earnings of a corporation.   There are two types of taxable dividends that a corporation can issue, non-eligible and eligible. non-eligible dividends are taxed at approximately 10% more than an eligible