The Government of Canada has made Registered Education Savings Plans (RESPs) a clear choice for families wishing to save for their children's future education costs. There are several types of RESPs - Family, Non-Family, and Group Plans. We are strongly recommend you to consult with us before you decide to open RESP. We can help you find which plan is right for you taking into consideration your goals, desire and financial ability. Registered Education Savings Plan is a type of savings account that grows tax free until a child is ready for post-secondary education. RESPs are a good way to save for a number of reasons:

•  the money grows tax free until the child needs it for tuition, residence and other educational expenses;

• an RESP allows you to apply for the Canada Education Savings Grant (see below) on your child's behalf;

• currently you may contribute annualy up to maximum RESP contribution limit $50,000

A Registered Education Savings Plan (RESP) is a contract between an individual who is the subscriber, and a person or organization, that is the promoter. The subscriber (or a person acting for the subscriber) makes contributions to the RESP, which earn income. The subscriber names one or more beneficiaries and agrees to make contributions for them.

How an RESP works

The promoter usually pays the contributions to the beneficiaries. Income earned on the contributions is paid to the beneficiaries in the form of educational assistance payments (EAPs). Beneficiaries include the EAPs, but not the contributions, in their income for the year in which they receive them from the RESP.

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

The diagram below gives an overview of how an RESP generally works.

The Canada Education Savings Grant (CESG)

A grant from the Government of Canada paid directly into an RESP that provides between 20 and 40 cents for every dollar saved for a child's education (on the first $2500.00 saved each year), depending on your income. Download a PDF version of this document from Government of Canada web site.

ATTENTION: On March 19, 2007, the Government of Canada announced changes to the Federal Budget that prove their continuing support for RESPs. The changes will provide additional flexibility and encourage Canadian families to save for post-secondary education with RESPs by:

• Eliminating the $4,000 limit on annual RESP contributions.

• Increasing the lifetime limit on RESP contributions to $50,000 from $42,000.

• Increasing the maximum annual amount of Basic CESG that can be paid in any year to $500 from $400 (and to $1,000 from $800 if there is unused grant room from low contributions made in previous years). Each child will continue to be eligible to receive up to $7,200 in CESG.

Additional Bonuses

In addition to Canada Education Savings Grant we can help you receive Education Bonus up to 15% of your RESP contribution made. Click here to see how it works.

The Canada Learning Bond (CLB)

A Government of Canada grant to help modest-income families save for their child's education. If your child was born after December 31st, 2003 and you get the National Child Benefit (NCB - sometimes called the family allowance or baby bonus), the Government of Canada will put $500.00 into your child's RESP in the first year, and $100.00 more each following year that your family qualifies for the NCB. You may downlaod a PDF version of this document from Government of Canada web site. This document is also available in the following languages:

Lifelong Learning Plan (RRSP Withdrawals for Education)

The Lifelong Learning Plan (LLP) lets you withdraw money from your RRSP (Registered Retirement Savings Plan) to pay for training or education for you, or your spouse or common-law partner. Download a PDF version of this document from Government of Canada web site.

We just had our first baby. When should we start saving?

Right away. In fact, the earlier in life you set up an RESP and apply for the Canada Education Savings Grant, the bigger your child's savings will grow.

What are the maximum annual and lifetime contributions allowed for an RESP?

There is no annual maximum contribution limit and a lifetime limit of $50,000 per beneficiary.

Are contributions to an RESP tax deductible?

Unlike Registered Retirement Savings Plans (RRSPs), there are no tax deductions for contributions made to an RESP.

Where does one open an RESP?

We will help you to find the best RESPs.

How many years can contributions be made to an RESP, and how long can income remain sheltered in the plan? Does this depend on the age of the beneficiary?

In the case of a non-family plan, contributions can be made up to and including the 22nd year of the plan's existence. The family plan is a little more restrictive in that contributions must stop in the year on the beneficiary's 21st birthday. Both types of plans must be terminated no later than the 35th year. Depending on the type of plan, the age of the beneficiary is relevant.

Can a subscriber transfer from one RESP to another RESP?

Subject to the terms of the plan, partial or full transfers are permitted under the Income Tax Act. The transfer of an amount from an RESP to another RESP is considered eligible for CESG purposes if:

•  there is a common beneficiary between the originating plan and the receiving plan; or
•  a beneficiary under the receiving plan is under 21 years of age, and is a brother or sister of a beneficiary under the originating plan.

Otherwise, the CESG must be repaid and an overcontribution tax may apply.

If a subscriber has two children in a family plan, is each child eligible for the $500 Grant?

Yes. Eligible Grant limits are calculated for each beneficiary individually.

In the case of a family plan, could all the investment earnings and the grant be paid out in the form of an EAP to only one of the beneficiaries, if it is felt that the others will not attend post-secondary institutions?

Under a family plan, the subscriber may select any or all of the named beneficiaries to receive some or all of the earnings and Grant up to each beneficiary's maximum grant limit. For example, one beneficiary could receive all earnings and grant (up to $7,200) if the subscriber chose to direct that EAPs be made that way.

In a family plan, who decides how the earnings and the grant are divided if one beneficiary decides not to pursue post-secondary education?

With the exception of Group Plans, the subscriber decides how to divide the earnings and the grant among remaining beneficiaries for educational purposes provided that none of the beneficiaries receive more than $7,200 in CESG.

What happens if the beneficiary does not go to school?

Here are some alternatives should this occur:

1. You may wish to leave money in the plan for a few years in case the beneficiary changes his or her mind, if the plan allows you to do this;

2. You may name a new beneficiary;

3. You may use the Accumulated Income Payment (AIP) route if the following conditions are met:

• the beneficiary is at least 21 years of age,
• the plan has been in existence for at least 10 years, and there are no other eligible beneficiaries, and
• the subscriber is a resident of Canada 

The RESP earnings can be paid out to a subscriber in the form of an Accumulated Income Payment (AIP).

Will I lose my money if my child does not go on to post-secondary education after high school?

No. An RESP can exist for 35 years before you must close it. If a child does not wish to pursue post-secondary education immediately, it is recommended that you wait a few years until the child decides whether or not to pursue his or her education. Rest assured that the money invested in the RESP will continue to earn tax-sheltered income during this period. Should your child decide never to pursue post-secondary education, you have the option of transferring the earned income (up to a maximum of $50,000) into your Registered Retirement Savings Plans (RRSPs), or that of your spouse. Finally, the money can be withdrawn subject to various tax rates. Under all these circumstances, the grant is returned to the Government of Canada. However, the interest earned on the grant remains with you, the subscriber.

What is the limit on the amount of Educational Assistance Payments (EAPs) a beneficiary may receive as a first payment?

The total of all EAPs that can be made to a beneficiary before he or she completes 13 consecutive weeks in a qualifying educational program is limited to $5,000. Once this period is completed, the beneficiary can receive any amount of EAPs. Students requiring more than $5,000 in EAPs may apply to HRDC for permission to receive larger EAPs. The promoter may impose other restrictions within their plans with respect to EAPs. Beneficiaries should consult with the promoter or trustee for specific information.

Can a subscriber contribute to the plan after the beneficiary begins receiving Educational Assistance Payments (EAPs) from the plan?

Yes, but one must remember that contributions must cease 22 years after the plan has been opened, and the plan must terminate in the 26th year after the plan has been opened. Please note however, that under a family plan, contributions can only be made until the beneficiary turns 21 years of age.

How will Educational Assistance Payments (EAPs) be taxed?

An EAP consists of earnings on contributions, earnings on the Grant and the Grant itself. EAPs are taxed in the hands of the beneficiary. Since students typically have little other income, they pay little or no tax on EAPs.

If the beneficiary does not pursue post-secondary education, can the Accumulated Income Payment be rolled over in either the subscriber's RRSP or the beneficiary's RRSP? How long can the money sit in the plan after an AIP is made?

Investment earnings can only be returned to the subscriber under certain conditions. Specifically,
  (1) the plan must have been in existence for at least 10 years,
  (2) all current and former beneficiaries must be at least 21 years of age and not currently pursuing higher education, and
  (3) the subscriber must be resident in Canada.
If these conditions are met, the subscriber may be allowed to receive an accumulated income payment. The subscriber may choose to transfer the payment to a registered retirement savings plan, without penalty, if the subscriber has sufficient room to absorb the amount of the transfer. The subscriber also has the option to receive a cash payment. In this case, the promoter will be required to deduct tax at source. When an AIP is made from an RESP, the subscriber must terminate the plan by the end of February of the following year. The CESG will be returned to the government when the first AIP is made. The AIP cannot be rolled over into the beneficiary's RRSP.

Important Facts about Registered Education Savings Plans

•  Any child can be the beneficiary;

•  Parents, grandparents, relatives or friends may put a combined total RESP limit of $50,000 into RESPs in respect of a particular beneficiary;

•  Subscribers can contribute for up to 22 years after a non-family plan has been opened and up to the year in which the beneficiary turns 21 years of age in a family plan;

•  Contributions to all RESPs on behalf of a beneficiary are subject to a lifetime limit of $50,000;

•  Contributions made to an RESP are not tax deductible, and are not taxed when returned to the subscriber;

•  The money in an RESP grows tax-free until the beneficiary is enrolled full-time in a qualifying program at a college, university or other recognized post-secondary educational institution

•  Then, the beneficiary can use Educational Assistance Payments paid from the RESP to help finance his/her post-secondary education;

•  If the beneficiary does not go on to full-time studies, another beneficiary can be named (subject to the terms of the plan). However, in order to keep the CESG, the new beneficiary must be under 21 years of age and either the new beneficiary is a brother or sister of the former beneficiary or both the new and old beneficiaries are under 21 years of age and are related to the subscriber. RESPs also now permit the payment to the subscriber of Accumulated Income Payments (AIP), or the roll over of the income to a subscriber's or subscriber's spousal Registered Retirement Savings Plan, under certain conditions.

•  An RESP must be terminated by the end of the 35th year.

Accumulated Income Payment (AIP) An accumulated income payment (AIP) is a payment to a subscriber from the income earned on money the subscriber has contributed to a Registered Education Savings Plan (RESP).  As well, it also includes income earned on funds in the RESP from a Canada Education Savings Grant (CESG) or a Canada Learning Bond (CLB).

Beneficiary The beneficiary of an RESP is usually a child, but can be any person named by the subscriber of an RESP to receive money for education after high school from the RESP in the form of Educational Assistance Payments (EAPs). Payments to a beneficiary are made according to the specific terms of the RESP.

Canada Education Savings Grant (CESG) A Canada Education Savings Grant (CESG) is a grant offered by the Government of Canada to encourage parents, family and friends to save for a child’s education after high school. A CESG is paid by Human Resources and Skills Development Canada directly into an RESP in which the child is a named beneficiary.

Canada Learning Bond (CLB) A Canada Learning Bond (CLB) is a Government of Canada grant to help modest-income families start saving for their child’s education after high school. A CLB is paid by Human Resources and Skills Development Canada directly into the RESP of a child who is a named beneficiary and whose parent or guardian is eligible to receive the National Child Benefit Supplement (NCBS).

Educational Assistance Payment (EAP) An Educational Assistance Payment (EAP) is a payment from an RESP to help a beneficiary continue his or her education after high school. An EAP is made up of, the Canada Education Savings Grant (CESG),   the Canada Learning Bond (CLB), and income earned on   the money saved in the RESP.

Family RESP These plans can have one or more beneficiaries. However, each beneficiary must be connected by blood or adoption to each living subscriber under the plan or have been connected to a deceased original subscriber, and be under 21 when named. Please note that contributions to this plan can only be made until a beneficiary turns 21.

Group RESP Group plans are operated on a pooling principle where the beneficiary named under a contract by a subscriber will receive Educational Assistance Payments when enrolled in a qualifying program, but if the beneficiary fails to qualify for payment, the earnings are distributed among other beneficiaries of the same age who do qualify. Contributions to a Group plan are calculated by the Foundation's actuary. The amount and frequency of these contributions stay the same as long as the beneficiary has not attained 18 years of age.

Individual RESP An individual RESP is a plan with only one beneficiary.   That beneficiary may or may not be related to the subscriber and can be over 21 when named a beneficiary. Since subscribers can open plans for themselves, a subscriber can also be the beneficiary of an individual RESP. Contributions to this type of plan can be made up to 22 years after the plan is established.

Net Family Income Net family income is the net income of the beneficiary’s family used to determine eligibility for the Canada Child Tax Benefit. Check your Canada Child Tax Benefit notice to find out your net family income.

Qualifying Educational Program A qualifying educational program is a course of study that lasts at least three weeks in a row, with at least 10 hours of instruction or work each week. A program at a foreign educational institution must last at least 13 weeks. Qualifying educational programs include apprenticeships, and programs offered by a trade school, CEGEP, college or university.

Registered Education Savings Plan (RESP) A Registered Education Savings Plan is a special savings plan that can help you, your family, or your friends save for education after high school. RESPs are registered by the Government of Canada to allow savings for education to grow tax-free until the person named in the RESP enrolls in education after high school.

RESP Provider An RESP provider is any person or organization offering a Registered Education Savings Plan (RESP) to the public. RESP providers include most financial institutions, such as Life Insurance companies, banks and credit unions, as well as group plan dealers and financial service providers.

Primary Caregiver The individual who receives the Canada Child Tax Benefit payment each month. It is usually the child’s mother. A primary caregiver can also be the department, agency or institution that receives a special allowance payable under the Children's Special Allowances Act.

Custodial Parent / Legal Guardian Custodial Parent or Legal Guardian is an individual, department, agency, or institution that has the legal right to make decisions affecting a child's interests, and the responsibility of taking care of the child.

Subscriber A subscriber is a person who opens an RESP and may make contributions to that RESP on behalf of an individual named as a beneficiary.

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