1 — Objective: The objective of the plan is to accumulate money in a tax shelter for a beneficiary’s post-secondary studies, generally that of a child.
2 — Contribution Ceiling: To make the most of the RESP’s tax advantages, the federal government has set a cumulative lifetime maximum of $50,000 per beneficiary.The contribution ceiling is “per beneficiary” for all RESP contracts in his/her name and not “per subscriber”.
3 — The Canada Education Savings Grant (CESG): The federal government created the Canada Education Savings Grant (CESG) program in 1998 to encourage parents to invest in their children’s post-secondary education.The CESG is equivalent to 20% of the first $2,500 in contributions made per beneficiary aged 17 years and under.It is calculated and paid into the plan on a monthly basis.
The CESG ceiling is $7,200 per beneficiary.
It is the plan promoter, in this case the Company that applies for the CESG on the subscriber’s behalf. However, to be considered eligible, the beneficiary must have a Social Insurance Number and be a Canadian resident.Certain restrictions apply to beneficiaries aged 16 and 17 years old.
On January 1, 2005, the federal government increased the CESG amount available to low-income families. As a result,grants can now be as much as 40% of the first $500 in contributions. Children born on or after January 1, 2004 may also be eligible for a Canada Learning Bond, the maximum amount of which is $2,000 over a 15 year period.
4 — Investment Options: The subscriber has access to various investment vehiclesthat are traditionally allowed in registered plans, such as awide range of segregated funds and guaranteed investments.
Subscribers can choose from whichever investments bestsuit their needs.
All Company investment options have a guaranteed minimumvalue at maturity and death that can reach or even exceed theinvested amounts.
5 — Beneficiary Eligibility Criteria
- Individual Plans: Anyone with a Social Insurance Number (SIN) can be the beneficiary of an individual plan. However, there can only be one beneficiary per plan.
- Family Plans: The beneficiary must be related to the subscriber by blood or adoption and have a SIN. There can be one or more beneficiaries per plan.
- Be the former beneficiary’s brother or sister and be under 21 years of age, or
- Both the former and current beneficiary must be related to the subscriber by blood or adoption and be under 21 years of age.
6 — Change of Beneficiary Individual Plans: The subscriber can change the designated beneficiary at any time for another who is either younger or older than the previous one.
- Family Plans: New beneficiaries must be related to the subscriber by blood or adoption and be under 21 years of age.
- In both plans, the new beneficiary (ies) must respect one of the following conditions to remain eligible for CESGs already paid into the plan:
7 — Withdrawals from an RESP: RESPs mature a maximum of 35 years after they’vebeen established. However, no further contributions can be made after the contract’s 31st year.
- Educational Assistance Payments (EAPs): Educational Assistance Payments include any payments,other than contribution reimbursements, that are made to a beneficiary who is enrolled in an eligible post-secondary program.The subscriber can decide the amount and frequency of EAPs as soon as the beneficiary begins post-secondarystudies.EAPs are intended to help pay for tuition fees and othere ducation-related expenses and costs including lodging,school supplies, food, transportation, etc. EAPs can bespread out over several years of study and are included in the student’s total annual income.A maximum of $5,000 can be paid out in EAPs during the first 13 consecutive weeks of enrolment.
- Accumulated Income Payments (AIPs): AIPs correspond to the distribution of investment in come earned on RESP contributions and the CESG.It is neither an educational assistance payment nor acontribution refund. In the event that AIPs cannot be transferred to an RRSP (see the section entitled Transfer of Accumulated Earnings into Your RRSP),they must be included in the subscriber’s current income and will also be subject to an additional 20% tax.
- Withdrawal of Contributions: Subscribers can withdraw their contributions at anytime without any impact on their taxes.However, if withdrawals are made before the beneficiary has begun post-secondary studies, the amount of the CESG attributable to the withdrawal must be reimbursed.Furthermore, such withdrawals could result in restrictions on the amount of any future CESGs.
- Designating a New Beneficiary: If the beneficiary is not attending a post-secondary institution, the subscriber may either name another beneficiary or else be obligated to refund the CESG.In a family plan, EAPs can be made arbitrarily to eachor all of the designated beneficiaries, up to a maximum of $7,200 per beneficiary.Transfer of Accumulated Earnings into Your RRSP If none of the beneficiaries undertake post-secondary studies considered admissible under the plan, the youngest beneficiary is over the age of 21 and the plan has beenin existence for over 10 years, it is possible, under certain conditions, to transfer the earnings generated by the RESP to the RRSP of either the subscriber or his/her spouse, up to a maximum of $50,000.
- Fees: Certain fees may apply and will vary according to the type of education savings plan chosen.
8 — Advantages of Each Type of plan:
- Individual Plans: Individual plans offer great flexibility with regards to beneficiary designation.
- Family Plans: Family plans offer great flexibility in terms of distribution of EAPs. Payments can be made to only one beneficiary or divided equally among several beneficiaries designated in the plan.