While the earlier you start saving for your child’s education, the better – it’s never too late to start. Even setting aside a small amount each year can turn into a substantial savings if you plan right. Luckily, there are several government programs that make saving for your child’s education a bit easier.
Registered Education Savings Plan (RESPs)
An RESP is a special savings account (provided by banks, credit unions, certified financial planners and group plan dealers) which lets parents save for their children’s post-secondary education including:
- apprenticeship programs
- trade schools or
Contributions to this plan, and any government grants that are paid into it, grow tax-free provided they stay in the plan.
Note: You don’t get a tax deduction for the money that you put into an RESP.
As the person who opens the plan and makes contributions to it (the subscriber), you’ll be able to designate the beneficiaries (such as your children, grandchildren, nieces, nephews or family friends) who are to use the funds for their education. While there is no annual limit to how much you can contribute to an RESP, there is a lifetime contribution limit of $50,000 per beneficiary.
When the beneficiary of the plan enrolls in a college or university, they can start taking money out from the plan in the form of Educational Assistance Payments (EAPs). This money is taxed in the hands of the beneficiary and, as a student with little or no income, he or she will likely be able to offset any taxes on this amount by claiming the basic personal amount and the tuition amount on their tax return.
Note: If the beneficiary decides not to pursue a higher education, you can keep the plan open (for up to 36 years) in case he or she changes their mind, transfer the amount to another RESP, or you can close the account. When you close an RESP account, the money you contributed will be returned to you tax-free. However, you will have to pay tax on any money you earned in the plan and return any government grant amounts that the RESP received. Refer to the Canada Revenue Agency (CRA) website for more information.
Canada Education Savings Grant (CESG)
As an additional encouragement to save for your child’s future, the federal government provides a grant of up to $500 on an annual contribution of $2,500 that you make to your child’s RESP. Depending on your net family income, you might be eligible to receive an additional CESG (A-CESG) amount that adds 10% or 20% to the first $500 contributed to the RESP each year.
Note: If you can’t make a contribution in a given year, you might be able to catch up in future years. Refer to the CRA website for information on the CESG carry forward room.
Remember, the grant is only available to children until the end of the year in which they turn 17.
Canada Learning Bond (CLB)
The Canada Learning Bond (CLB) is a government program that deposits up to $2,000 into an RESP of an eligible child, even if you don’t add any money to the plan. The CLB is available to children:
- born on or after January 1, 2004
- who are residents of Canada
- who have a valid Social Insurance Number (SIN) and
- who are from low-income families
The CLB amount includes $500 for the first year of eligibility and $100 for each year the child remains eligible, until the year he or she turns 15. Additionally, the government will deposit $25 in an RESP to help cover the costs of opening the plan.
Note: Before you enroll, make sure your RESP provider offers the Canada Learning Bond – not all providers do.
Provincial education savings incentives
British Columbia, Saskatchewan, and Québec offer additional education savings incentives that add money to an RESP on top of any money you might receive from the CESG, A-CESG, or CLB – helping you save money even faster!
- The British Columbia government contributes $1,200 to children born 2006 or later via the B.C. Training and Education Savings Grant (BCTESG). You have until the day before the child’s 9th birthday to apply for this grant.
- Saskatchewan’s Advantage Grant Education Savings (SAGES) provides families with a grant of 10% on contributions made to an RESP between January 1, 2013 and December 31, 2017, up to a maximum of $250 per child per year (maximum lifetime grant of $4500 per child). This program will be suspended after December 31, 2017 – you have until then to contribute and take advantage of the program.
- The Québec Education Savings Incentive (QESI) is available to children under 18 and is equal to 10% on the contributions made to an RESP, up to a maximum of $250 per child per year. The trustee of the RESP must apply for this grant with Revenu Québec within 3 years of the contributions made.