Registered Education Savings Plan (RESP)
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.
Applicants must meet the following criteria:
- have a Social Insurance Number (SIN)
- have a SIN for anyone named in the RESP as a beneficiary
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.
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 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.