Let’s talk about RESPs
This month, we are focusing on Registered Education Savings Plan (RESP) and the planning that goes around this type of savings plan. This is a general introduction to RESPs. Please contact our team for more in-depth information on setting up an RESP as part of your holistic Living Plan.
An RESP is a special savings account to help pay for a child’s post-secondary education. It can be setup for one person (individual), a family, or a group (also known as a scholarship or pooled RESP).
An RESP is a type of tax-deferred and government-assisted savings plan designed to accumulate money through funding from you (the subscriber), and through government savings incentives such as the Canada Education Savings Grant (CESG) and/or the Canada Learning Bond (CLB) if certain conditions are met.
Note: The rules for CESG and CLB are covered by the Canada Education Savings Act and its accompanying regulations. See link below. In addition, provincial governments may make contributions in the form of provincial grants (P-Grant). Also note, different types of RESPs have different beneficiary requirements.
Acronyms
CESG – Canada Education Savings Grant
P-Grant – Provincial Grants
CLB – Canada Learning Bond
EAP – Educational Assistance Payment
AIPs - Accumulated Income Payments
POE – Proof of Enrollment
How do RESP’s work?
You (the subscriber) can open an RESP for one or more beneficiaries, usually your children, to establish a specific RESP with your contributions, on behalf of your specified beneficiaries. Beneficiaries must have an SIN prior to establishing an RESP in their name.
The federal government adds money to the RESP through programs like the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). These contributions depend on your beneficiary’s eligibility requirements. The contributions, CESG, CLB, and P-Grant increase in value over time; this increase in value is referred to as “income”. The RESP grows on a tax-deferred basis until the beneficiary is ready to attend post-secondary education.
When the beneficiary is ready for post-secondary education, you can authorize the financial institution to make payments from the RESP. These payments, called Educational Assistance Payments (EAPs), include the government grants and the income earned in the RESP.
Family RESPs vs Individual RESPs
Contribution are defined by the type of RESP: family and individual. In an individual RESP, contributions may be made at any time, as long as the beneficiary has a SIN. In a family RESP, contributions may only be made for beneficiaries under the age of 31. Family plans allow a family to shift contributions that have not attracted CESG from one beneficiary to another. This enables a family to take advantage of any available grant room for a beneficiary with contributions from the current and previous years.
What are the limits for contributions to an RESP?
RESP lifetime contribution maximums are $50,000 per child, although many subscribers may choose to limit contributions to $2,500/year to ensure access to the maximum CESG, or $5,000/year for children with basic CESG room carried forward.
Unused Contributions
If the beneficiary does not go to school, the money may be transferred to an account for another child or can be transferred into the subscriber's RRSP (subject to certain restrictions).
How do you make withdrawals from an RESP?
Typically, withdrawals are requested at the time a beneficiary has enrolled in post-secondary education. The beneficiary must be a resident of Canada with a valid SIN number, as well provide proof of enrollment (POE). Some exceptions apply regarding transfers from other RESPs.
If the RESP is an individual RESP, the beneficiary can be any age and have any relationship to the subscriber, including being the subscriber.
If the RESP is a family RESP, any beneficiary added to the RESP must at that time be under 21 (or have been the beneficiary of a different family RESP immediately prior to becoming a beneficiary to the new RESP) and be “connected” by blood or adoption to the original subscriber.
Note: There are different requirements in the circumstances of a custodial parent of the beneficiary that is not a subscriber. Please contact our team for more information.
(Contributions can be withdrawn by the subscriber, tax-free, and can be used for any purpose. Although the withdrawal is not taxable, contribution withdrawals may cause a repayment of CESG. CESG (Basic and Additional), CLB, and P-Grant cannot be paid out except as part of an EAP or a repayment to the government – i.e. they are not available for AIPs or payments to designated educational institutions, and AIPs and PDEIs will in fact cause a repayment).
What is considered Proof of Enrollment (POE)?
Valid proof of enrollment in a qualifying and specified educational program is required when submitting a request for an Educational Assistance Payment (EAP) income/growth and grant/bonds or post-secondary education capital withdrawal from an RESP plan.
Download the proof of enrollment guideline by clicking on the button below.
At the time an EAP is made, the beneficiary must be enrolled at a “post-secondary educational institution” in a program at a post-secondary level that is either:
a “qualifying educational program”(also referred to as full-time), which lasts at least 3 consecutive weeks* and requires the student spends at least 10 hours each week on courses or work in the program;
or
a “specified educational program” (also referred to as part-time), which lasts at least 3 consecutive weeks* and requires the student spends at least 12 hours each month on courses in the program.
*The minimum course duration for full-time studies depends on the type of program and whether the educational institution is in Canada, or outside of Canada.
The following information is required for acceptable proof of enrollment which indicates the beneficiary has enrolled in a specific program:
Beneficiary/student’s full name
Name of educational institution (by logo, letterhead or web address)
Program of study – name of program/course list
Program type – university, college, trade college or other
Qualified education program (full-time) or Specified educational program (part-time)
Program length – number of years – may be implied by the Program of study
Course length – number of weeks – may have to calculate the number of weeks by the session – the fall session is usually 13 weeks, but could be as little as 3 weeks
Start Date / Term Date – may be implied by the term details (for example: Fall 2023)
Students may need to provide several of the following documents to capture all the required information as indicated above:
Letter from the registrar
Name of student, name and or logo of the educational institution, program of study, program length
Invoice or Receipt of Payment
Name of student, name of educational institution, program name listing courses – may imply full time or part time by the number of courses listed, course length or tuition amount
Includes Requirement to Pay/deposit to proceed with registration.
Deadline must be future dated. If past deadline, must show proof of payment.
Online printout confirmation of registration status - (may include timetables or course schedules)
The name of the student, the name, logo or web address of the educational institution, courses selected or program name, and course/term length
Letter of acceptance/ Offer of Admission (not acceptable as stand-alone document)
Student name, name and, logo or web address of the educational institution, program of study, program length
Note: If the only condition is a requirement to pay, an offer of admission/acceptance letter may be sufficient. However, if the deadline to pay has passed, additional documents are required.
Email from the Registrar (not acceptable as stand-alone document)
Must be copy (scanned, photocopy or screen print copy of the email), copy must contain: name of student, name, logo or web address of the educational institution, program of study, program length
Student Enrollment Contract
Must be signed by the student and a school representative/Office of the Registrar and contain all POE requirements.
Important: POE issue dates must be current and align with student enrollment. In addition, POE documents cannot be future dated.
Proof of past year enrollment and the $8,000 rule
If a subscriber requests cumulative EAPs in excess of $8,000 within a 12-month period, then in addition to providing proof of current enrollment, which is always required, the beneficiary may also need to provide proof of past enrollment - i.e., proof that the beneficiary has completed at least 13 consecutive weeks of a qualifying (full time) program in the preceding 12 months.
Proof of past enrollment can usually be satisfied by providing a copy of the beneficiary's most recent T2202 Education and Textbook Amounts Certificate or T2202A Tuition, Education, and Textbook Amounts Certificate. Educational institutions issue these receipts to students so that the student can claim the education amount and tuition tax credits. The receipts will indicate during which months in the preceding calendar year the beneficiary was a “full-time” or “part-time” student with the school.
Educational Assistance Payment Deadline
EAPs cannot be withdrawn after the six-month period beyond the end of the term of enrollment. This is outlined within section 146.1 of the Income Tax Act (ITA) and there are no exceptions.
An RESP beneficiary may continue to receive EAP withdrawals from his or her RESP for up to 6 months after the beneficiary has ceased to be enrolled in a qualifying or specified educational program.
To claim an EAP after the completion of a course, the beneficiary must submit a valid proof of enrollment including:
Any existing acceptable documents for the POE for RESP Educational Assistance Payment or;
A Tuition, Education, and Textbook Amounts Certificate form T2202A (provided by educational institution) - since this document is issued in February of the following year, this document may not be issued until after the 6 month period has expired and therefore will not be accepted.
Scholastic standing of beneficiary
There are no restrictions on the scholastic standing of the RESP beneficiary, unless imposed by the particular financial institution offering the RESP. IG Wealth Management imposes no scholastic restrictions.
Key Links to Validate if a School is a qualified educational institution
List of designated educational institution – Main university List
List of certified educational institutions – Secondary College list
Other key links
Canada Education Savings Act (justice.gc.ca)
Canada Education Savings Regulations (justice.gc.ca)
As always, we are happy to help you with any questions regarding your financial plan. Please send your questions and comments to our team by email at chimuk.landry@igpwm.ca or by phone at (204) 784-4588.
The Chimuk Landry Team
