teens studying in-classroom

From the moment a child is born, looking towards the future takes on a whole new level of meaning for families. The notions of providing, preparing, and saving run deep for many parents, grandparents, and other family members as a means to help the younger generation put their best foot forward when they transition into post-secondary education. With the ever-rising costs of tuition and education-related expenses, Registered Education Savings Plans (RESPs) stand out as a primary option to effectively save for your child’s future degree.

Education costs and where RESPs come into play

Since 1990–1991, the average tuition (plus other compulsory fees) in Canada will have grown from $1,464 to an estimated $7,755 in 2017–2018, including a 13-percent jump from 2014–2015.1, 2 If the average annual increases continue in this pattern, children born in 2015 may be looking at over $60,000 in tuition and compulsory fees alone for a four-year undergrad degree.2 And these numbers are only part of the overall equation once accommodations and other living expenses are factored in, driving home the significance of establishing an efficient savings plan.

At the highest level, RESPs are tax-deferred plans specifically designed to help families reach education savings goals, offering a combination of flexibility, investment growth potential, and government support.

Types of plans Family plan: This type of plan allows for more than one beneficiary. Each beneficiary must be connected by a blood relationship or adoption to each living subscriber or to a deceased original subscriber.
Individual plan: This type of plan allows for one beneficiary. The beneficiary can be the subscriber and may or may not be related to the subscriber.
(Note: Not all institutions offer both types of plans.)
Who can be a subscriber? Parents and grandparents are the most common subscribers to RESPs. Subscribers must be related by blood or adoption to the beneficiary(ies) for a family plan.
Who can be a beneficiary? Any resident of Canada who has a Social Insurance Number (SIN).
Key details
  • There is a $50,000 lifetime contribution limit per RESP beneficiary. There is no annual limit, although only a portion of the contribution may be eligible to receive the Canada Educations Savings Grant (CESG).
  • Contributions are not tax-deductible and can be withdrawn tax-free.
  • Income, gains, and government incentives, including the CESG, Canada Learning Bonds (CLB), and some provincial incentive plans accumulate on a tax‑deferred basis.
  • The RESP has to be wound down by the end of the calendar year that includes the 35th anniversary of the plan opening date (40th year for a plan with a disabled beneficiary).
  • There are flexible investment options within the plan; investments that are eligible for an RRSP are also eligible for an RESP.
  • Further information and details are available on the CRA website.

Canada Education Savings Grant (CESG)

A main benefit of RESPs exists in the form of a federal government support program called the Canada Education Savings Grant. These grants provide a significant boost to the RESP’s capital, helping to build savings faster.

Features of the CESG
  • A lifetime limit of $7,200 per beneficiary.
  • The CESG is paid to an RESP beneficiary who is 15 years old or under. (Specific rules exist for children who are 16 and 17 years old.)
  • The government matches 20 percent of annual contributions to an annual maximum of $500 on a $2,500 contribution for each beneficiary. If the beneficiary has unused grant room from a previous year, the annual maximum payable is $1,000.
  • A beneficiary must be a resident of Canada in order to accumulate grant room for any given year.

Further information and details are available on the CRA website.

Building strategy into withdrawals

When the time comes for a beneficiary to start withdrawing funds once enrolled in a post-secondary program, a basic understanding of the types of withdrawals can make a difference in regards to how the funds are treated. In general, it’s advisable for a beneficiary to receive an Educational Assistance Payment (EAP) first, rather than a refund of contributions. While contributions can be removed at any time, if the CESG and income portions remain in an RESP after a beneficiary has completed school, there may be negative consequences when these funds are withdrawn from the plan.

Type of Withdrawal Features Tax Treatment
Educational assistance payments (EAPs)
  • EAP payments consist of:
  • Accumulated income
  • CESG
  • CLB
  • Provincial benefits
  • Payable for up to six months after ceasing enrollment in an educational program
  • $5,000 withdrawal limit in the first 13 weeks of a post-secondary program
  • Fully taxable to the beneficiary
  • Tax slip issued to the beneficiary
  • Beneficiary pays very little, if any, income tax since they are entitled to the tuition tax credit in addition to their basic personal exemption
Refund of contributions (principal) to you, the subscriber, or to your beneficiary
  • Contributions can be returned at any time
  • Portion of CESG may be repayable to the government
  • Not taxable
  • No tax slips issued
Accumulated income payments (AIPs)
  • An AIP may be paid if there is income earned within the RESP that has not been used by a beneficiary and specific conditions are met
  • Fully taxable to the subscriber
  • Can reduce amount subject to tax by transferring up to $50,000 to your RRSP if you have contribution room
  • Additional 20% tax for any portion that is not transferred to subscriber’s RRSP or spousal RRSP
Payment to a designated educational institution (DEI) in Canada
  • Payment is made if RESP has to be collapsed while investment income remains in the plan and the plan does not qualify for an AIP
  • Taxable income to the DEI — not to you
  • Not eligible for a charitable donation tax credit

grandparents grandson storytime

RESPs from a grandparent’s perspective

Saving for a young family member’s educational future is a focus not limited just to parents, but is a feeling that resonates quite strongly among the grandparent generation as well. Within some families, grandparents may have both the desire and the financial means to contribute to an RESP for their grandchildren. Not only is this a wonderful way to give a meaningful gift, but RESPs also present an opportunity for grandparents to transfer wealth early as part of their estate-planning goals.

Under the RESP guidelines, grandparents are able to establish and be the subscriber of an RESP. For those who choose to do so, there are certain advantages in establishing multiple beneficiary plans. For example, a grandparent can include all of his or her grandchildren from each child in one family RESP. A parent, by comparison, won’t have the same list of beneficiaries since they cannot include nephews and nieces as beneficiaries of a family plan.

An alternate approach is one in which grandparents gift funds to their son or daughter who in turn establish (i.e., are the subscriber of) the RESP for the grandchildren. A main benefit of this approach is that the subscriber (the grandparent’s child) can transfer the earnings from the RESP to their own RRSP, with certain limits, if one of the beneficiaries does not pursue post-secondary education. The disadvantage is that the grandparent has no control over the funds; the son or daughter controls how gifted funds are used, and as the RESP subscribers, they have the ability to withdraw the contributions.

With approximately 1.7 million students enrolled in Canadian universities in 2014–2015, according to Universities Canada, and given the fact that roughly three out of every four new jobs will require a post-secondary education,3 the value of higher education — and adequately saving for it — is paramount. Having the support of an RESP allows youth to focus on their education, rather than the cost of it, and likewise puts them in the best position to successfully transition into life after school.

This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc., Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliates. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licensed representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc. and the private client division of RBC Global Asset Management Inc., Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason.

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