RESP

A Registered Education Savings Plan - RESP - is a valuable investment which can ensure your children take full advantage of post secondary opportunities across Canada. They are NOT restricted to kids though as anyone can open one if they plan to use the funds for educational purposes. This page contains material that is reproduced from the Canada Customs and Revenue Agency and is protected by their copyright.

An RESP is government sponsored (Registered with Canada Customs and Revenue Agency) and are allowed to grow tax free. Money paid from the plan at maturity will be taxed as income for the student.

The plans are administered by private companies/persons (Promoter) who will collect contributions and invest them accordingly. Up to $4,000 per beneficiary (student) can be contributed per calendar year, with a lifetime limit of $42,000 without any tax implications. Each student may have more than one plan but the limit is strictly per student - Save for school the smart way with an RESP Canada.

The most important aspect of the RESP's is that the Government will add a % to the first $2,000 per calendar year ($400) up to and including the year of the students 17th birthday. ("Government" link reproduced with permission of the Minister of Public Works and Government Services Canada 2004). This is called the Canada Education Savings Grant (CESG) and the amount added to the RESP is dependant upon your family income. The minimum you will receive is 20% ($400 on $2,000) if you earn over $72,756 - the most you will receive is $500 if your income is less than $36,378 and you save $2,000. Any amounts paid in are not included in the annual limit for tax purposes.

The maximum a student can receive from CESG is $7200 over the lifetime of the plan. Any amount of CESG not claimed each year will accumulate as up to $800 can be paid if not previously claimed. If the RESP is not eventually used for educational purposes any CESG payments will have to be repaid to the government.

To apply, the student must be resident in Canada and have a Social Insurance Number (SIN) which must be provided to the promoter at the plan inception. Also, the individual making the contributions will be required to provide their SIN.

Types of Savings Plans

There are 3 main types of Plan:

Non-Family - There can be only one beneficiary but anyone (grandparents/godparents etc.) can make the contributions whenever they want for however much they want to pay.

Family - There can be one or more beneficiary's as long as they are blood relatives or adopted by the person/s making the contributions. There are no restrictions on when and how much is paid in (apart from the tax implications of over subscribing).

Group - These plans are normally offered by foundations who set how much is paid in and when. Each age group will have a particular plan and all members will take a share. There are some fairly complicated rules attached and should be thoroughly researched with the plan providers before committing.

RESP Termination

At termination/maturity, there are several options:

1. The intended student does not go into post secondary education. The contributions are returned tax free to the person who made them. The CESG is repaid to the government. Any income generated by the plan will be subject to taxation.

2. The student enrolls in a qualified program at a post secondary educational institution and completes the full program. Initially, $5000 can be paid from the plan, then after 13 weeks there is no limit to the amount paid as long as the student remains in the program. These payments are called Educational Assistance Payments (EAP's). The student cannot be receiving EI (employment Insurance)or the program must not be part of the students employment (an apprenticeship for example).

3. The proceeds can be transferred to another Registered Education Savings Plan.

4. The proceeds can be paid to a designated educational institution.

A

Plan must be closed on or before the last day of the 25th year after the plan was started.