Registered Education Savings Plans (RESPs) -> The basic information
What is a Registered Education Savings Plan (RESP)?
Income Tax Act s. 146.1, Canada Education Savings Act
A Registered Education Savings Plan (RESP) is an Education Savings Plan (ESP) that has been registered with Canada Revenue Agency (CRA), and is governed by the Income Tax Act and Regulations. It is a method for parents to save for their children's post-secondary education, with the earnings in the plan growing tax-free.
The federal government will also contribute to the RESP, by giving a Canada Education Savings Grant (CESG), based on the amount of contributions to the RESP by the subscriber. The CESG is governed by the Canada Education Savings Act and Regulations. There are also a few provincial RESP grant programs.
An RESP must be terminated no later than the last day of the 35th year following the year in which the plan was entered into, except for "specified plans", for which the deadline is 40 years.
A specified plan is:
The people involved in the RESP are:
When the RESP funds are withdrawn to be used for education, the CESG and accumulated earnings of the RESP will taxable in the hands of the student as the funds are withdrawn. The subscriber contributions withdrawn are not taxable. See our article How are the funds paid out of the RESP, and are they taxable? This article also explains what happens when the RESP is not used for educational purposes.
In August 2008, Human Resources and Social Development Canada (HRSDC) published a Review of Registered Education Savings Plan Industry Practices. One part of the review discusses complaints by consumers about RESPs. The main complaints were the following, in relation to group scholarship providers:
It is very important for consumers to understand up front all the costs, features and restrictions of any RESP in which they plan to invest. It is also very important to ensure prior to enrolment that any post-secondary studies are eligible under their plan.
Tax Tip: Ensure prior to enrolment that post-secondary studies are eligible under your RESP!
Revised: September 26, 2021
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