Some Facts About RESP
Canada Education Savings Grant (CESG)
The Human Resources and Skills Development Canada will pay a 20% Canada Education Savings Grant on the first $2,000 of annual contributions made to all eligible RESPs for a qualifying beneficiary for 1998 and later years. Beneficiaries qualify for a grant on the contributions made on their behalf before the end of the calendar year in which they turn 17 years of age. However, special conditions must be met by the end of the calendar year in which the beneficiary turns 15. All CESGs are paid to the trustee of the RESP. The grants and accumulated earnings will be part of the educational assistance payments paid out of the plan to the beneficiary. The maximum CESG amount that a beneficiary can receive is $7,200.
Under proposed changes, starting in January 2005, the CESG rate will increase on the first $500 contributed to an RESP in respect of a beneficiary who is a child under 18 years of age. The CESG rate will be increased to:
— 40% if the child’s family has qualifying net income for the year of $35,000 or less,
— 30% if the child’s family has qualifying net income for the year in excess of $35,000 but not exceeding $70,000,
— qualifying net income of the child’s family for a year will generally be the same as the one used to determine eligibility for the Canada Child Tax Benefit.
Other RESP contributions eligible for the CESG will continue to qualify at the rate of 20%.
Canada Learning Bonds
Under proposed changes, each child born after 2003 may receive the Canada Learning Bond for each year where the child’s family is eligible for the National Child Benefit (NCB) supplement.
RESP contribution limits.
For each beneficiary, the maximum annual amount of money for contributions to all RESPs is $4,000 and the lifetime limit is $42,000.
When determining if the annual or lifetime limits have been exceeded, the payments made to an RESP under the CESG program are not included.
Changing the beneficiary
Generally, when you replace one RESP beneficiary with a new beneficiary, the contributions for the former beneficiary are treated as if they had been made for the new beneficiary on the date they were made originally. If the new beneficiary already has an RESP, this may create an overcontribution.
This rule does not apply in the following situations:
— The new beneficiary is a brother or sister of the former beneficiary and is under 21 years of age.
— Both beneficiaries are connected by blood relationship or adoption to an original subscriber of the RESP, and both are under 21 years of age.
In these situations, the contributions made for the former beneficiary are not included when determining whether the new beneficiary’s annual or lifetime contribution limit has been exceeded.
A qualifying educational program is an educational program which lasts at least three consecutive weeks, and which requires a student to spend no less than 10 hours per week on courses or work in the program. For an EAP to be paid to a student in a program at a university, college, or other designated educational institution in Canada, the program has to be at the post-secondary school level. The program will not qualify if it is taken at a time during which the student is receiving employment income (excluding part-time or temporary employment to finance studies) and the program is taken in connection with, or as part of the student’s employment.
A post-secondary educational institution includes:
— a university, college, or other designated educational institution in Canada,
— an educational institution in Canada certified by the Minister of Human Resources Development Canada as offering non-credit courses that develop or improve skills in an occupation,
— a university, college, or other educational institution outside Canada (you can verify eligibility calling number 1-800-959-8281)that has courses at the post-secondary school level, as long as the student is enrolled in a course that lasts at least 13 consecutive weeks.
Michael Arbetov, CFP, FMA