is a RESP?
A RESP is a savings plan that is designed to help a subscriber pay
for the post-secondary education of a child. It is a contract entered
into between an individual (the subscriber) and a person or organization
(the promoter) where the subscriber makes contributions to the savings
plan, which accumulate in a tax deferred environment until they
are withdrawn. When the funds are withdrawn, they are taxed in the
hands of the child who is normally at a lower tax rate.
When the RESP is established, the subscriber must choose one or
more persons (depending on whether an Individual or Family Plan
has been set up) who will be beneficiaries under the plan. The promoter
enters into the contract and agrees to pay the income from the plan
to the beneficiary or beneficiaries, to be used to fund their education.
The RESP is required to be registered by the promoter with Canada
Customs and Revenue Agency (CCRA).
there a limit to how much can be contributed to a RESP?
Yes. The maximum combined amount that can be contributed to all
plans on behalf of each beneficiary by all subscribers is $4,000
per year. The lifetime maximum contribution for each beneficiary
What can a beneficiary use
RESP funds for?
In addition to
other incidental educational expenses, RESP funds can be used to
pay for the beneficiary's tuition, books, supplies, housing or residence,
Who can be a RESP subscriber?
A subscriber is
the person who is responsible for initiating the creation of a RESP
as well as making any contributions. Spouses and common-law partners,
as defined in Canada's income tax laws, can also be considered as
joint RESP subscribers if the plan permits. On behalf of the beneficiary,
the subscriber is also required to keep track of the amount contributed
to all RESPs
be a beneficiary?
The question of who can be a beneficiary is determined by whether
the RESP is an Individual Plan or a Family Plan. In both cases however,
a beneficiary is the person who will receive the funds from the
RESP to be used toward providing financing for his or her post-secondary
In an Individual Plan, there are generally no restrictions on who
can be the beneficiary. The RESP subscriber establishes the plan
for one beneficiary and may designate anyone, including himself/herself
or his/her spouse. In the case of a Family Plan, the subscriber
establishes the RESP for one or more beneficiary. Each beneficiary
must be under the age of 21 when the beneficiary designation is
made and must be related to each subscriber by blood or adoption.
Blood relations are considered to be the subscriber's children,
grandchildren, brothers and sisters. Unlike with the Individual
Plan, the subscriber can not designate himself/herself or his/her
spouse as beneficiary under a Family Plan.
What happens if a RESP is not
registered with the CCRA?
The Income Tax Act requires that your RESP promoter must register
your RESP with the CCRA. To do this however, your promoter requires
a Social Insurance Number (SIN) for each beneficiary. If you have
not provided this information to your RESP promoter, your RESP has
not been registered with the CCRA. According to a release from the
CCRA dated August 2001, RESPs established in 1999 must be registered
by December 31, 2001. If this registration does not occur by this
date, all investment income earned on any contributions will be
included in the contributor's income for the year in which the contribution
was made. The RESP promoter will issue the contributor a T3 slip
for any investment income earned on contributions made in 1999 and
2000 and will also send a copy of these slips to the CCRA. The CCRA
will then adjust the affected 1999 and/or 2000 tax records accordingly,
which may result in additional income tax owing for those years.
What is the Canada Education
Savings Grant (CESG) and how does it relate to my RESP?
The Canada Education Savings Grant (CESG) is a government grant
established in 1998 designed to augment RESP contributions. It pays
20% on the first $2,000 of contributions made each year to all eligible
RESPs of a qualifying beneficiary. The maximum annual CESG available
per beneficiary is $400 per year until the year that the beneficiary
turns 17. The total maximum CESG amount that a beneficiary can receive
What investments qualify for
There are restrictions in place that limit the types of investments
that a RESP can hold. In general, with certain exceptions, the qualified
investments for a RESP are the same as those for a Registered Retirement
Savings Plan (RRSP). However, in the case of a RESP, there is no
foreign content limit in place.
Who can contribute to a RESP
and how long can contributions be made?
In the case of an Individual Plan, anyone can contribute. However,
with a Family Plan RESP, contributions are limited to blood relatives.
RESP contributions for Individual Plans can be made up to and including
the 22nd year of the plan but for Family Plans, contributions can
only be made up until the beneficiary in question turns 21 years
of age. RESPs for both plan types must be terminated on or before
the last day of the 25th year in which the plan was established.
It is also not necessary for the RESP subscriber to be a Canadian
resident however, the beneficiary or beneficiaries must be, at the
time that the contribution was made, to be eligible to receive the
What is an over-contribution?
occurs when the total of all contributions made by all subscribers
to all plans for a particular beneficiary (excluding funds from
the CESG program) exceeds the maximum annual or lifetime limit for
that beneficiary. If this happens, each subscriber is assessed a
penalty of 1% of their share of the over-contributed amount per
month until the over-contribution is withdrawn. The over-contribution
amount is also not eligible for the CESG program (speak to a Fiscal
Agents advisor for further details).
What happens if the beneficiary
of a RESP decides not to obtain a post-secondary education?
If the beneficiary of a RESP chooses not to attend a post-secondary
institution, there are two available options to be considered. In
the first option, the subscriber can choose to change the beneficiary
of the RESP. In the case of a Family Plan, the new beneficiary must
be under the age of 21 and must be related to the subscriber by
adoption or blood.
For the second option, if the subscriber is a Canadian resident
and has adequate RRSP contribution room, he/she can contribute up
to $50,000 of the RESP accumulated income to their RRSP or to a
spousal RRSP. To do this however, the RESP must have been in existence
for at least 10 years and the beneficiary must be at least 21 years
of age and must not be pursuing a post-secondary education. Any
accumulated income not taken into a RRSP will be assessed a 20%
penalty and will be taxed at the subscriber's highest marginal tax
It should also be noted that the subscriber can withdraw their original
contributions from a RESP at any time on a tax-free basis since
the contributions do not bring about a tax deduction when they are
made. Any CESG grant money earned on the original contributions
must also be paid back.
What happens when a beneficiary
wishes to access the RESP to fund their post-secondary education?
When a beneficiary decides to attend a post-secondary institution,
he or she will receive Educational Assistance Payments (EAP), which
are comprised of accumulated RESP earnings and CESG money. The EAPs
are spread out over the years that the full-time student is enrolled
in a qualifying institution, which is defined as a designated university,
community college, Canadian technical college or university outside
of Canada. The full-time student can be attending the institution
or be enrolled in distance education, such as correspondence courses.
The accumulated earnings obtained through the are taxed in the hands
of the student at their income level, which is normally very low.