3- Registered education savings plan

An RESP allows individuals to contribute to a trusteed plan to finance the cost of post-secondary studies for themselves or a child. Although these contributions are not deductible, they may be remitted to the contributor at maturity with no tax consequences. The income accumulates in the plan tax-free until it is paid to the student as an Education Assistance Payment.

An RESP, which has a maximum life of 35 years, may be an individual (family or otherwise) or group plan. With the exception of a family plan, there is no restriction as to the age of or relationship of the contributor with the beneficiary. The maximum contribution period is 31 years.

Disabled Beneficiaries

When an RESP beneficiary is eligible for disability tax credit, the maximum life of an RESP is 40 years and the contribution period is 35 years. These rules apply only to single beneficiary RESPs. Therefore, if the disabled person is a beneficiary of a family plan, he/she can transfer his/her share to a single beneficiary plan in order to take advantage of these measures.

Contributions

There is no annual contribution limit and the cumulative ceiling is $50,000 for each beneficiary, regardless of the number of subscribers. Overcontributions are computed at the end of each month and are subject to a special 1% monthly tax. It is possible to reduce overcontributions by withdrawing funds from an RESP.

Interest and similar expenses relating to a loan for contributions to an RESP are not deductible.

Eligible Investments

Eligible RESP investments are generally the same as for an RRSP (see Section VIII). As is the case with RRSPs, RESPs are subject to rules regarding prohibited investment rules and advantages granted under the registered plan (see Section VIII).

Canada Education Savings Grant

The federal government pays a subsidy for each child that is a beneficiary of an RESP, from the day the child is born until his/her 17^th birthday. The annual maximum CESG per beneficiary amounts to $500, i.e. 20% of the first $2,500 of contributions paid annually. Low- and middle-income families may benefit from an additional grant. Each child is entitled to a cumulative maximum of $7,200.

A family that did not contribute to its child’s RESP for a year or more and therefore has unused contribution room for future years can receive a grant of not more than $1,000 as a CESG in a year (i.e. the CESG on a maximum contribution of $5,000).¹²

Special provisions apply if the child is 16 or 17 years old at the end of the year. Briefly, contributions to the RESP must start before the end of the calendar year in which the child turns 15 to qualify for the federal and Quebec grants.

Example: In March 2024, a father contributes $800 to an RESP set up for his 3-year-old daughter, Jennifer, with a CESG eligible contribution limit of $2,500 in 2024. A CESG of $160 (20% of $800) is paid directly to the RESP trustee. In November 2024, Jennifer’s grandmother contributes $2,500 to another RESP for her. Only $1,700 of the second contribution will give entitlement to a CESG. Thus, in 2024, RESPs for Jennifer will have received $3,300 in contributions and a CESG of $500, the prescribed annual maximum amount. If the grandmother had not contributed to the RESP in that year, the contribution limit for CESG purposes (i.e. $1,700) would have been carried forward to a future year.

Canada Learning Bond

A modest-income family may also be entitled to the initial Canada Learning Bond (CLB) of $500 plus a $100 supplement each year during which the family is eligible until the child turns 15 (cumulative maximum of $2,000). For this purpose, an RESP must be opened, but it is not necessary to contribute to the plan.

If an eligible child born as of 2024 doesn’t have an RESP by age four, they will automatically be enrolled in the CLB as of 2028-2029.

The CLB can be retroactive. Therefore, the child’s primary caregiver can request the CLB for an eligible child until the day before they turn 18. Once the child turns 18, they could also request the CLB for themselves, until the day before they turn 21. The government plans to extend this period until the individual turns 30.

Quebec Education Savings Incentive

Families that contribute to an RESP are entitled to financial assistance from Quebec up to $3,600 lifetime for each child. The assistance equals 10% of the annual RESP contributions for a child under 18 years old, up to $250 (on a $2,500 contribution). Unused entitlements up to $250 of preceding years may be added to the basic amount. Hence, a family that has accrued benefits may be eligible for a maximum amount of $500 annually, provided it makes a minimum $5,000 contribution to the plan for a child. Low- and middle-income families can get additional financial assistance. In general, the rules governing the QESI are the same as for the CESG.

If you want to take full advantage of the RESP and grants and retain control over amounts invested for education purposes, you could make an RESP contribution that will maximize the grants and invest the excess in a family trust.

Summary – CESG and QESI

The QESI amount is calculated on net contributions paid in the year, that is, contributions less withdrawals. Accordingly, if RESP withdrawals are equal to or greater than contributions during the year, no amount qualifies for the Quebec grant. Remember this rule, especially if you invest in a family RESP where withdrawals are made for one of the beneficiaries.

Educational Assistance Payments

Education Assistance Payments are distributions of income accumulated in the RESP, the QESI, the CESG and Canada Education Bonds. To be entitled to them, a beneficiary must be registered in a qualifying post-secondary program (proof of registration must be provided for this purpose). RESP beneficiaries can receive payments from the plan up to six months following the termination of their registration in a qualifying program. A $8,000 limit applies to Educational Assistance Payments paid to full-time students during the first 13 consecutive weeks of an eligible training program, following which there is no limit as long as the child continues to be registered in a qualifying program. Part-time students who take at least 12 hours of courses per month can generally receive Educational Assistance Payments up to $4,000 per term.

Administratively, the CRA sets an annual threshold for education assistance payments. For 2024, this threshold is $28,122.¹³Annual requests for education assistance payments below this threshold are considered reasonable. If they exceed this threshold, the promoter must establish the reasonableness of the expenses.

Payments are included in the student’s income the year they are paid to him/her.

Reimbursement of Government Assistance

If no beneficiaries of a family plan nor beneficiaries of an individual plan are continuing post-secondary studies, the amount of QESI, CESG and Canada Education Bonds must be reimbursed to the government. Such reimbursements may also be required in other particular instances such as the revocation of the RESP or early withdrawal of certain contributions.

Capital withdrawal

Contribution, which are capital invested in an RESP, belong to the subscriber, who can withdraw them at any time, in whole or in part, for his or her own use or for the use of the plan beneficiary. There is no limit on such a withdrawal and the amounts are not taxable. However, if contributions are withdrawn before the eligible beneficiaries goes on to secondary education, the bonds and subsidies must be repaid.

Transfer of income to an RRSP

If all intended beneficiaries are not pursuing higher education by age 21 and the plan has been in place for at least 10 years, a contributor is allowed to withdraw the income from the plan. Withdrawals are taxed and are subject to an additional 12% tax for federal purposes and 8% for Quebec purposes.¹⁴ The contributor can avoid the additional tax by transferring these funds as a contribution to an RRSP under which the contributor or his/her spouse is the annuitant, if he/she has unused contribution room. The transfer is limited to $50,000.

Transfer to an RDSP

Parents who contribute to an RESP for a child with a severe disability can transfer RESP amounts to an RDSP (see Section IV) if the plans share a common beneficiary.

¹² For more information see the Government of Canada’s Education Savings page.

¹³ Indexed annually.

¹⁴ For residents of provinces other than Quebec, the additional federal tax is 20%.