The Canada Education Savings Grant
The government of Canada adds to your savings in a Registered Education Savings Plan (RESP) with the Canadian Education Savings Grant (CESG). The CESG is a financial incentive for parents, family, and friends to save for a child’s education after high school. The grant is paid directly into the child’s RESP and will not be included in the annual and lifetime contribution limits for the beneficiary. The lifetime limit for any one beneficiary is $7,200.
Lifetime RESP contributions are limited to $50,000 per beneficiary. When more than the $50,000 RESP lifetime limit is contributed with respect to a beneficiary, a 1% per month penalty will be payable on the excess contribution that is not withdrawn by the end of the month.
The government of Canada will contribute the Basic CESG grant equal to 20 per cent of the first $2,500 of annual contributions to an RESP (up to a maximum of $500 per year per beneficiary) for the benefit of children under 18 years of age. For missed years, there are carry-forward provisions that allow you to catch up on missed CESGs by up to $500 per year.
In 2015, for lower and middle income families, the additional CESG rate on the first $500 of annual contributions is 20 per cent for families with income of $44,701 or less (CESG equals $100 on the $500 of contributions), and 10 per cent for families with income between $44,702 and $89,401 (CESG equals $50 on the $500 of contributions).
If the beneficiary does not use the CESG for education, the principal amount of the CESG grants must be repaid to the government. You will not have to repay income earned on the CESG grants but the income will be taxed when the amounts are withdrawn.
The CESG will only be available for a 16 or 17 year old if the RESP contributions (net of any withdrawals) made before the year the child turned 16 either totaled $2,000 or were at least $100 per year in any four previous years.
Subscribers of separate RESP plans for their children are allowed to transfer amounts between individual RESPs for siblings, without incurring penalties and without triggering the repayment of CESGs, provided that the beneficiary of the plan receiving the transfer of assets had not attained 21 years of age when the plan was opened. Set up and make contributions to an RESP for your children to qualify for the CESG.
If you would like more information about the Canada Education Savings Grants, seek the advice of a Chartered Professional Accountant.