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Education Saving Information
Learning Centre - RESPs
Education Savings Plans Questions & Answers

Funding your child's secondary education can be an extravagantly expensive procedure. Education Savings Plans can help to take the edge off. We have provided some questions and answers to give you a better understanding of what they are about.

RESP Questions Index


What is a RESP?

Is there a limit to how much can be contributed to a RESP?

What can a beneficiary use RESP funds for?

Who can be a RESP subscriber?

Who can be a beneficiary?

What happens if a RESP is not registered with the CCRA?

What is the Canada Education Savings Grant (CESG) and how does it relate to my RESP?

What investments qualify for a RESP?

Who can contribute to a RESP and how long can contributions be made?

What is an over-contribution?

What happens if the beneficiary of a RESP decided not to obtain a post-secondary education?

What happens when a beneficiary wishes to access the RESP to fund their post-secondary education?

RESP Questions & Answers


What 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the subscriber makes contributions to the savings plan, which accumulate in a tax deferred environment until they are withdrawn. When the funds are withdrawn, they are taxed in the hands of the child who is normally at a lower tax rate.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).

Is 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 is $42,000.

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, and transportation.

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

Who can 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 education.

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 is $7,200.

What investments qualify for a RESP?

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 CESG grant.

What is an over-contribution?

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 rate.

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.

Notice: This article provides a brief overview of Registered Education Savings Plans (RESPs) and is, by no means, an in-depth explanation of this particular investment vehicle. Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments contained in this overview are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein, readers should seek advice from a professional advisor that is appropriate to their personal circumstances.





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