It’s time to get schooled on RESPs, CESGs, EAPs and AIPs – Part 1


As a parent, you want your child to have the same – if not better – opportunities that you had. But sorting out the different options available to save for your child’s education can be overwhelming.

This article is the first in a two-part series that aims to simplify your federal options. Part one focuses on Registered Education Savings Plans (RESPs) more broadly, in addition to discussing Canada Education Savings Grants (CESGs). Next week, in part two, we’ll take a look at Educational Assistance Payments (EAPs) and Accumulated Income Payments (AIPs).

RESPs 101

In a nutshell, a registered education savings plan (RESP) is a contract between an individual known as the subscriber (typically a parent or grandparent), and an organization (usually a bank) known as the promoter. The subscriber names one or more beneficiaries (future students), and agrees to make contributions for them towards their future education needs. (These contributions cannot be deducted from your income tax return, but remain non-taxable while in the RESP.) The promoter agrees to pay Educational Assistance Payments (EAPs) to the beneficiaries. The EAP is a benefit that provides a 20% return.

The most common type of RESP is the family plan which allows subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each subscriber, and must be a resident of Canada before the designation is made.

A beneficiary under a family plan entered into after 1998, must be less than 21 years of age at the time he or she is named as a beneficiary. When one family plan is transferred to another, a beneficiary who is 21 years of age or older can still be named a beneficiary to the new RESP.

How an RESP works

When your child begins his or her post-secondary education your promoter will pay out the RESP contributions, and the income earned on them, as an EAP. As long as the income stays in the RESP, it is not taxable. If your child decides not to attend a post-secondary institution, you’ll receive those payments at the end of the contract. You do not have to include this in your income tax statement as it would be considered after-tax money. Beneficiaries do not have to include contributions in their income, however, they must include EAPs in their income the year in which they were received.

Who can be a subscriber?

1. Spouses or common-law partners can be joint subscribers

2. An ex-spouse or former common-law partner of a subscriber (in this case, you would require a court order or written agreement for dividing property after a breakdown of the relationship)

3. Someone who acquires subscriber’s rights under the RESP, or who continues to make contributions to the RESP for the beneficiary after the death of a subscriber.

All subscribers under an RESP must provide their Social Insurance Number (SIN) to the promoter before the CRA can register the RESP.

Contribution rules

You may only contribute to a family plan if the beneficiaries are under 31 years of age at the time of the contribution. However, you can transfer funds from another family plan even if one or more of the beneficiaries are 31 years of age or older at the time of the transfer.

As stated, RESP contributions cannot be deducted on your income tax return, nor can you deduct the interest paid on money borrowed to contribute to an RESP.

Since 2007, there has been no annual limit for contributions to RESPs, but there is a lifetime limit of $50,000 per beneficiary. If there’s an excess contribution at the end of a month when the total of all contributions made by all subscribers to all RESPs is more than the lifetime limit for that beneficiary, each subscriber is liable to pay a 1% per-month tax on his or her share of the excess contribution that is not withdrawn by the end of the month. The tax is payable within 90 days after the end of the year in which there is an excess contribution, and exists until it is withdrawn.

Canada Education Savings Grant (CESG)

Employment and Social Development Canada (ESDC) provides an incentive for you to save for your child’s post-secondary education by paying a grant based on the amount contributed to his or her RESP.

ESDC pays a basic CESG of 20% of the annual RESP contributions that you make, to a maximum grant of $500 per child per year ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

Unused CESG contribution room is carried forward and used when RESP contributions are made in future years. Beneficiaries will qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age. However, since the CESG has been designed to encourage long-term savings for post-secondary education, there are specific contribution requirements for beneficiaries who reach 16 or 17 years of age. These beneficiaries can only receive CESG if at least one of the following two conditions is met:

1. A minimum of $2,000 was contributed to, and not withdrawn from, the RESP in respect of the beneficiary before the year in which he or she reaches 16 years of age; or

2. An annual minimum of $100 was contributed to, and not withdrawn from, the RESP in respect of the beneficiary in any four years before the year in which he or she reaches 16 years of age.

This means that you must start contributing to an RESP for your child before the end of the calendar year in which he or she reaches 15 years of age in order to be eligible for the CESG.

If your child does not pursue post-secondary education, the CESG is returned to the government.
I hope you found this first installment helpful. Tune in next week for the exciting conclusion on payments! Okay, so it’s not as exciting as a trip to Saks but you will feel good about learning how to handle these.

Dave Gillan has over 28 years’ experience in the financial services sector, specializing in tax and estate planning. He also has particular expertise in providing financial literacy education programs to companies and executives in the resource sector.

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These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.

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