Registered Education Savings Plan
Did You Know That There Are Canadian Government Grants To Help You Create a Registered Education Savings Plan for Each of Your Children?
There are indeed. It is one of the many reasons why every newborn in Canada should have a Registered Education Savings Plan (RESP) begun to secure his or her post secondary education even though the contributor doesn’t get a tax deduction for the money contributed to an RESP.
The Canadian Education Savings Grant (CESG) is a payment of 20% on RESP contributions to a maximum of an additional $500 per year into each child’s RESP until the end of the calendar year in which the child turns 17. So it is not just the contributor investing in the child’s future.
The RESP grows accumulating capital value, dividends and interest income tax free until money is paid out to the child for post secondary education as Educational Assistance Payments. The growth is then taxed in the hands of the student. Because many students have little or no other income, they can often withdraw the money tax-free.
If your child does not attend a college or university full time right after high school you will find that the definition of post secondary education to be elastic enough to cover many forms of training and the qualifying time period for further education is also elastic within limits.
If your child does not pursue further education within the time limits, your contributions will be returned to you as tax free capital. The accumulated growth will be paid to the contributor and taxed at his or her marginal tax rate in that year. Or it can be rolled tax free into the contributor’s RRSP, provided there is contribution room available.
A child can have more than one RESP so long as the total contributions to all of his or her RESPs taken together do not exceed $50,000, and the maximum CESG contribution by the Government of Canada does not exceed $7,200 for that child.
Grandparents and aunts and uncles may prefer to donate to a child’s existing RESP or set up a separate one rather than buying yet another toy or electronic gizmo for birthdays, Christmases, Bar and Bat Mitzvahs and First Communions.
For low income families there is also the Canada Learning Bond (CLB) under which the Canadian Government will contribute an initial payment of $500, and then $100 per year up to age 15 in each year the family is entitled to the National Child Benefit Supplement to a total of $2,000.
If you would like to discuss setting up an RESP for your child or grandchild, niece or nephew, telephone me at 905-984-2100 ext 27, or drop me an email at firstname.lastname@example.org to set up a free, one hour, no-obligation consultation. We can meet at my office or in your home as you prefer.