Government Funding for RESPs
For many people that wish to save to finance post-secondary education, opening a Registered Education Savings Plan (RESP) is an important starting point. For most people the motivation for opening an RESP is to obtain the government grants money and to shelter any accumulated investment income earned within the RESP account from income tax, until the funds are withdrawn.
In general, the Canadian federal government offers two education grant programs to help families and individuals save to finance post-secondary education costs:
- the Canada Education Savings Grant (CESG) program (most common and broadly used)
- the Canada Learning Bond (CLB)
The CESG and CLB are two valuable federal government programs intended to help families and individuals save for their children’s’ future. Both programs, accompanied within the RESP account structure, provide tremendous flexibility and control for your hard earned savings.
Canada Education Savings Grant (CESG)
Through Human Resources and Skill Development Canada (HRSDC), the federal government offers to contribute to your RESP annually based upon a formula that takes into consideration the subscriber’s contributions, the beneficiary's age, and the amounts previously deposited under the CESG program. There are a number of rules and criteria that govern the government’s contributions to an RESP, including the following:
- To be eligible for a CESG grant, the RESP beneficiary must be 17 years of age or younger.
- The maximum CESG grant, per beneficiary, per year is $500.00.
- The lifetime maximum CESG grant, per beneficiary, is $7,200.00.
- The annual CESG grant is calculated as 20% of the subscriber’s annual contribution, to a maximum of $500.00, per beneficiary.
- Prior to 2007, the maximum annual CESG grant was $400.00 and a lifetime maximum of $7,200.00.
- To receive the CESG grant, you must request the financial institution administering your RESP account to apply to HRSDC each year that you have contributed.
- If you have unused CESG grant room from previous years, you can claim the previous unclaimed CESG grant monies up to a maximum of $500.00 per year, per beneficiary. For example, if you previously contributed $2,500.00 to your RESP, but forgot to claim the CESG grant of $500.00, you can make a claim for CESG grants to a maximum of $1,000.00, per year, which includes the current CESG maximum claim and the previous unclaimed CESG grant.
- To calculate the unclaimed CESG grant available, simply count the number of years the beneficiary was alive, a resident in Canada and under the age of 18 between 1998 and 2007. Multiply this number by the maximum allowable annual CESG grant, $400.00. Now count the number of years the beneficiary was alive, a resident in Canada and under the age of 18 from 2007 onward. Multiply this number by the maximum allowable annual CESG grant, $500.00. Now add the two calculated numbers together. This is the calculated maximum CESG grant available to the beneficiary. From the calculated maximum available CESG grant, deduct the total CESG grants already received for the beneficiary and the resulting number is the unused CESG grant room available. If you are unsure, request the financial institution administering your RESP to calculate the unused CESG grant room available.
- Once the application for the CESG grant has been made it takes HRSDC approximately two months to deposit the CESG grant into an RESP account.
- CESG payments are sent directly to the RESP plan provider for credit to the RESP account.
- There are special rules governing CESG grants for beneficiaries 16 and 17 years of age.
- RESPs for beneficiaries aged 16 and 17 can only receive CESG grants if at least one of the following two conditions are met:
- A minimum of $2,000.00 of contributions has been made to, and not withdrawn from, RESPs in respect of the beneficiary before the year in which the beneficiary reached 16 years of age: or
- A minimum annual contribution of at least $100.00 has been made to, and not withdrawn from, RESPs in respect of the beneficiary in any four years prior to the beneficiary reaching 16 years of age.
- This suggests that an RESP must be opened for a beneficiary prior to the beneficiary reaching 15 years of age in order to be eligible for the CESG grants.
- To qualify for a CESG grant, contributions must be made to an RESP account before December 31st of the year in which the beneficiary turns 17 years of age.
- RESP beneficiaries that are not resident in Canada are not eligible for CESG grants and cannot accumulate unclaimed CESG grants for the period of time they are a non-resident.
- CESG grant monies, along with subscriber contributions and accumulated earned income, are transferable to another RESP account only if
- The transferring RESP and the receiving RESP have at least one common beneficiary, or
- If a beneficiary in the receiving RESP account is under the age of 21 and is a brother or sister to a beneficiary of the transferring RESP account.
- If the above criteria are not satisfied, the potential income tax consequences for the transferring subscriber may be substantial.
Additional CESG grants
For 2010 onward, HRSDC offers an additional CESG grant for low-income families. To qualify for the additional CESG grant, the RESP beneficiary must be 17 years of age or younger and the family’s income must be less than $81,941.00**. Below are the prescribed additional CESG grant rates:
- For family incomes of $40,970.00** or less, the additional CESG grant will equal 20% on the first $500.00 in RESP contributions, to a maximum of $100.00 per year; and
- For family incomes above $40,970.00**, but less than $81,941.00**, the additional CESG grant will equal 10% on the first $500.00 in RESP contributions, to a maximum of $50.00 per year.
** These amounts are adjusted each year based on the rate of inflation.
The qualifying net income of the beneficiary’s family, for a given year, is generally the same as that used to determine eligibility for the Canada Child Tax Benefit (CCTB).
To determine if your RESP qualifies for the additional CESG grant, refer to any of the following documents to find your family’s qualifying income amount:
- Canada Child Tax Benefit Notice of Determination
- Goods and Services Tax Credit/harmonized Sales Tax Credit Notice of Determination
- Notice of Assessment or Reassessment received from Canada Revenue Agency (CRA) (if married or you have a common-law partner you must add the two incomes (line 236) together)
- Consult “My Account” available on the CRA website
Canada Learning Bond (CLB)
Through Human Resources and Skills development Canada (HRSDC) an additional education savings grant is made available to help modest-income families save for their child’s post-secondary education called the Canada Learning Bond (CLB). A separate application must be made annually for the CLB and, if successful, HRSDC will pay the CLB grant directly into the child’s RESP account. Below are the details of the CLB:
- To qualify, the RESP beneficiary must have been born after December 31, 2003.
- To qualify, your family must currently receive the national Child Benefit Supplement as part of the Canada Child Tax Benefit (also known as Family Allowance).
- The CLB will only be paid for RESP beneficiaries that are 15 years of age or younger.
- In the first year of successful application, the CLB program will credit $500.00 to your child’s RESP account.
- For each additional year after the initial year of successful application, the CLB program will credit $100.00 to your child’s RESP account.
- The lifetime maximum grant under the CLB is $2,000.00 per qualified RESP beneficiary.
- In the first successful application year, in addition to the $500.00 credit to your RESP, HRSDC will pay an additional $25.00 to help cover costs associated with opening an RESP account.
- The CLB can be used to help cover the costs associated with full- or part-time studies in an apprenticeship program, a CEGEP, trade school, college, or university.
- The financial institution that administers your RESP account makes the CLB application on your behalf.
- To receive the CLB you are not required to make contributions to the RESP account, but an RESP account does need to be opened to receive the CLB payments.
- If the RESP beneficiary does not pursue post-secondary education, the RESP can remain open for up to 36 years and the money can be used if the beneficiary decides to go back to school later. But if the beneficiary ultimately does not pursue post-secondary education, the CLB must be returned to the government.
Note: In addition to these federal government programs, you also may be eligible for a provincial education assistance program, if your home province offers them. For example, the provincial governments in Alberta, Quebec and British Columbia offer the following provincial programs:
- The Alberta Centennial Education Savings Plan Grant (ACESPG): designed to help Alberta parents as an incentive to start saving for their child’s post-secondary education.
- The Quebec Education Savings Incentive (QESI): a tax measure that encourages Quebec families to start saving early for the education of their children and grandchildren.
- The British Columbia Training and Education Savings Grant is a $1,200 contribution to the RESP of any child resident in B.C., born after January 1, 2007 and has an RESP opened prior to child turning 7 years of age.