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The Money Management Newsletter: RESP - Education Savings
Who's eligible for the RESP grant?

Budget proposals with respect to RESPs introduced something called the Canada Education Savings Grant (CESG) whereby Ottawa intends to assist with post secondary education savings by adding 20% to the annual amount contributed to an RESP up to a maximum grant of $400 per year. To receive the full grant each year, a contribution of at least $2,000 would have to be made to the RESP.

There are conditions on this grant however, which are as follows:

1. Grants apply only to RESP contributions made after 1997.
2. Grants only apply to children under 18.
3. The maximum total lifetime grant will be $7,200. ($400 x 18).
4. Children who turn 16 or 17 in the year in which a contribution is made will only receive a grant if one of the following conditions are met. Contributions of at least $100 must have been made for at least four years prior to the year in which the child turned 16 or RESP contributions must have totaled at least $2,000 prior to the year in which the child turned 16.
5. If the child does not attend a post secondary institution and no other beneficiary is appointed, the grants must be repaid.

Another plus is that any unused grant eligibility can be carried forward up until the age 17 cutoff. If someone can't make the annual contribution of $2,000 required to receive the full $400 grant, any remaining grant amount can be claimed with later contributions.

For example, say a contribution is made one year of $500 and that the maximum grant received is $100 (20% x $500). Since the maximum allowable grant that year was $400 it means $300 in grant eligibility can be carried forward so that in the following yea,r the total grant eligibility is $700 ($400 for the current year plus $300 carryforward).

If a contribution of $3,000 is made that year, a total of $600 in grants can be claimed ($3,000 x 20%). Note that even with carryforwards, the maximum grant that can be claimed in any one year is 20% of the contribution and the maximum yearly contribution for an RESP is $4,000. In the example shown there still remains $100 of grant eligibility that can be carried forward.

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