RC4092(E) Rev. 12
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A registered education savings plan (RESP) is a contract between an individual (the subscriber) and a person or organization (the promoter).
Under the contract, the subscriber names one or more beneficiaries (the future student(s)) and agrees to make contributions for them, and the promoter agrees to pay educational assistance payments (EAPs) to the beneficiaries.
Family plans are the only RESP that allow subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each living subscriber or have been so tied to a deceased original subscriber.
The Canada Revenue Agency registers the education savings plan contract as an RESP, and lifetime limits are set by the Income Tax Act on the amount that can be contributed for each beneficiary (see RESP contribution limits). Unless the RESP is a specified plan, the RESP must provide that no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 31st anniversary of the opening of the plan. Furthermore the plan has to be completed by the end of the year that includes the 35th anniversary of the opening of the plan.
The subscriber (or a person acting for the subscriber) generally makes contributions to the RESP. Subscribers cannot deduct their contributions from their income on their tax return.
The promoter usually pays the contributions, and the income earned on those contributions, to the beneficiaries. The income earned is paid as educational assistance payments (EAPs).
If the contributions are not paid out to the beneficiary, the promoter usually pays them to the subscriber at the end of the contract. Subscribers do not have to include the contributions in their income when they get them back.
Beneficiaries generally receive the contributions and the EAPs from the promoter. They have to include the EAPs in their income for the year in which they receive them. However, they do not have to include the contributions they receive in their income.
A specified plan is essentially a single beneficiary RESP (non-family plan) under which the beneficiary is entitled to the disability tax credit for the beneficiary’s tax year that includes the 31st anniversary of the plan. Furthermore, a specified plan cannot permit another individual to be designated as a beneficiary under the RESP at any time after the end of the year that includes the 35th anniversary of the plan.
In addition, no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 35th anniversary of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the plan.
The following diagram gives an overview of how an RESP generally works.
Human Resources and Skills Development Canada (HRSDC) provides an incentive for parents, family and friends to save for a child’s post-secondary education by paying a grant based on the amount contributed to an RESP for the child. The Canada education savings grant (CESG) money will be deposited directly into the child’s RESP.
No matter what your family income is, HRSDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.
HRSDC will also pay an additional CESG amount for each qualifying beneficiary. The additional amount is based on your net family income and can change over time as your net family income changes.
For 2012, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:
The following chart gives you a brief overview of how the CESG is calculated depending on your family net income:
|Canada education savings grant summary chart|
|Net family income for 2012||$42,707 or less||$42,707 to $85,414||More than $85,414|
|CESG on the first $500 of annual RESP contribution||40% = $200||30% = $150||20% = $100|
|CESG on $501 to $2,500 of annual RESP contribution||20% = $400||20% = $400||20% = $400|
|Maximum yearly CESG depending on income and contributions||$600||$550||$500|
|Lifetime maximum CESG for which you may qualify||$7,200||$7,200||$7,200|
Every child under age 18 who is a Canadian resident will accumulate $400 (for 1996 to 2006) and $500 (from 2007 and subsequent) of CESG contribution room. Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.
The qualifying net income of the child's family for a year will generally be the same as the income used to determine eligibility for the Canada child tax benefit (CCTB).
Beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.
However, since the CESG has been designed to encourage long term savings for post-secondary education, there are specific contribution requirements for beneficiaries who attain 16 or 17 years of age. RESPs for beneficiaries 16 and 17 years of age can only receive CESG if at least one of the following two conditions is met:
This means that you must start to save in RESPs for your child before the end of the calendar year in which the beneficiary attains 15 years of age in order to be eligible for the CESG.
The CESG and accumulated earnings will be part of the EAPs paid out of the RESP to the beneficiary.
If the beneficiary does not pursue post-secondary education, the CESG is returned to the government.
HRSDC provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education after high school (post-secondary education). The Canada learning bond (CLB) money will be deposited directly into the child’s RESP.
For families entitled to the National Child Benefit (NCB) supplement for their child, the CLB will provide an initial $500 to children born on or after January 1, 2004. To help cover the cost of opening an RESP for the child, HRSDC will pay an extra $25 with the first $500 bond. Thereafter, the CLB will also pay an additional $100 annually for up to 15 years for each year the family is entitled to the NCB supplement for the child.
The NCB supplement is included in the Canada Child Tax Benefit (CCTB).
Children who are in care of a public primary caregiver of whom receive a special allowance under the Children’s Special Allowance Act, are also entitled to the Canada learning bond.
If the beneficiary does not pursue post-secondary education, the CLB is returned to the government.
For more information on the CLB, call 1-800-O-CANADA (1-800-622-6232).
The Alberta Centennial Education Savings Plan Grant (ACESPG) is a program designed to give Alberta parents an incentive to start planning and saving for their child’s post-secondary education.
The Alberta Ministry of Enterprise and Advanced Education will contribute a basic grant of $500 to the RESP of every child born to or adopted by Alberta residents in 2005 and after. To be eligible, you must first register your child’s birth and obtain a social insurance number (SIN) for your child. Then you have to open an RESP for the child and deposit at least $100 to the RESP within one year prior to applying for the grant.
Additional grants of $100 are available to children who turn 8, 11, or 14 after January 1, 2005, provided the children are attending school in Alberta or attending a school that is satisfactory to the Ministry of Enterprise and Advanced Education.
If the beneficiary does not pursue post-secondary education, the ACESPG is returned to the Government of Alberta.
Residents of Alberta can call 1-866-515-ACES (2237) toll free or by going to Alberta's Ministry of Enterprise and Advanced Education to learn more about the ACESPG.
The Quebec education savings incentive (QESI) is a tax measure that encourages Quebec families to start saving early for the education of their children and grandchildren.
The incentive, which went into effect on February 21, 2007, consists of a refundable tax credit that is paid directly into a registered education savings plan (RESP) opened with a financial institution or with another RESP provider that offers the QESI.
For the credit to be paid to your account, the trustee designated by your RESP provider must apply for it with Revenu Québec.
If you wish to open an RESP, you may contact an RESP provider that offers the QESI, such as:
For more information, go to Revenu Quebec or call Service Quebec at 1-877-644-4545.
Except for family plans, generally, there are no restrictions on who can be the original subscriber under an RESP:
If you are not the original subscriber, you can become a subscriber only if one of the following situations applies:
All subscribers under an RESP have to give their SIN to the promoter before we can register the RESP.
Under proposed changes, you will be able to designate an individual as a beneficiary under the RESP only if:
Under proposed changes, the SIN may not be required if the beneficiary is a non-resident individual who has not received a SIN before the designation is made.
The residency requirement does not apply when the designation is made in conjunction with a transfer of property from another RESP under which the individual was a beneficiary immediately before the transfer. A beneficiary under a family plan entered into after 1998, must be less than 21 years of age at the time he or she is named as a beneficiary. When one family plan is transferred to another, a beneficiary who is 21 years of age or older can still be named a beneficiary to the new RESP.
Under proposed changes, you will be able to make contributions for a beneficiary only if:
Generally, you can contribute to family plans for beneficiaries who are under 31 years of age at the time of the contribution. However, transfers can be made from another family plan even if one or more of the beneficiaries are 31 years of age or older at the time of the transfer.
RESP contracts can take advantage of the new age limit as long as the specimen plan under which the contract is held is amended. The amendment must be applicable for 2008 and subsequent taxation years.
RESP contributions cannot be deducted from your income on your return. In addition, you cannot deduct the interest you paid on money you borrowed to contribute to an RESP.
For 2007 and later years, there is no annual limit for contributions to RESPs and the lifetime limit on the amounts that can be contributed to all RESPs for a beneficiary is $50,000.
Payments made to an RESP under the Canada Education Savings Act or under a designated provincial program are not included when determining if the lifetime limit has been exceeded.
An excess contribution occurs at the end of a month when the total of all contributions made by all subscribers to all RESPs for a beneficiary is more than the lifetime limit for that beneficiary. We do not include payments made to an RESP under the Canada education savings program (CESP) or any designated provincial program when determining whether a beneficiary has an excess contribution.
Each subscriber for that beneficiary is liable to pay a 1% per-month tax on his or her share of the excess contribution that is not withdrawn by the end of the month. The tax is payable within 90 days after the end of the year in which there is an excess contribution. An excess contribution exists until it is withdrawn.
You have to inform us of your share of the excess contribution to all RESPs for a beneficiary. To calculate the amount of tax you have to pay on your share of the excess contribution for a year, complete Form T1E-OVP, Individual Tax Return for RESP excess contribution for ______.
You can get this form on our website by going to Forms and publications.
There are limits on the amounts that can be contributed to RESPs for a beneficiary.
For each beneficiary, the annual limit for contributions to all RESPs for years after 1995 is:
For each beneficiary, the lifetime limit for contributions to all RESPs for years after 1995 is:
Payments made to an RESP under the Canada Education Savings Act or any designated provincial programs are not included when determining if the annual or lifetime limits have been exceeded.
You can reduce the amount subject to tax by withdrawing the excess contributions. However, in determining whether the lifetime limit has been exceeded, we include the withdrawn amounts as contributions for the beneficiary even though they have been withdrawn.
Example (lifetime limit)
In 1993, Hugh established an RESP for his son Allan and contributed a total of $32,000 to it prior to 2012. Allan’s grandmother, Cathy, also opened an RESP for Allan in 1993, and prior to 2012, contributed $16,000 to it. None of the prior year contributions made by Hugh and Cathy exceeded the annual or lifetime limits that were applicable in those prior years.
In January 2012, Hugh contributed $1,000 and Cathy contributed $500 to their respective RESPs and in July, both Hugh and Cathy contributed an additional $500. Hugh subsequently withdrew $500 in December.
The lifetime limit on all contributions that can be made to all RESPs for Allan is $50,000. Together Hugh and Cathy had contributed $48,000 to RESPs for Allan before 2012 and at the end of January 2012, the total contributions were $49,500 which was still within the lifetime limit for contributions to RESPs for Allan. However, at the end of July the total contributions were $50,500 and the lifetime limit was exceeded by $500.
|Hugh and Cathy’s share of the lifetime contributions|
|December 2012 (withdrawal)||($500)||$0|
|Share of the lifetime contributions||$33,500||$17,000|
|Lifetime excess contributions for 2012|
|Hugh’s lifetime contributions to an RESP for Allan||$||32,000|
|Cathy's lifetime contributions to an RESP for Allan||+||$||16,000|
|Total contributions to an RESP for Allan||=||$||48,000|
|Maximum allowable for 2012 (50,000 - 48,000)||=||$||2,000|
|Total of contributions made in 2012||-||$||2,500|
Hugh’s share of the lifetime excess contributions for 2012 was $300. This was determined by multiplying his proportion of the total contributions made to both RESPs in 2012 ($1,500/$2,500) by the excess ($500) or ($1,500/$2,500 × $500). Similarly, Cathy’s share was $200 ($1,000/$2,500 × $500).
Hugh’s tax payable for 2012 is calculated as follows:
Hugh’s tax on his share of the excess contribution is calculated for each month the excess contribution remains in the RESP. For July to November, Hugh’s tax is $300 × 1% × 5 months or $15.00.
Cathy’s tax payable for 2012 is calculated as follows:
Cathy’s tax on her share of the excess contribution is calculated for each month the excess contribution remains in the RESP. For July to November, Cathy’s tax is $200 × 1% × 5 months or $10.00. Because Hugh withdrew the excess amount in December 2012, neither Cathy nor Hugh must pay any tax on the excess contribution in December.
The promoter can make the following types of payments:
Subject to the terms and conditions of the RESP, the promoter can return your contributions to you tax-free when the contract ends or at any time before. Promoters do not issue a T4A slip, Statement of Pension, Retirement, Annuity and Other Income, to report these payments. Do not include these payments as income on your tax return.
The promoter can also pay the contributions tax-free to the beneficiary. This is in addition to any taxable educational assistance payments. Refer to the next section for more details.
An educational assistance payment (EAP) is the amount paid to a beneficiary (a student) from an RESP to help finance the cost of post-secondary education. An EAP consists of the Canada education savings grant, the Canada learning bond, amounts paid under a designated provincial program and the earnings on the money saved in the RESP. The promoter reports EAPs in box 042 on a T4A slip and sends a copy to the student. The student includes the EAPs as income on his or her return for the year the student receives them.
The promoter can only pay EAPs to or for a student if one of the following situations applies:
A beneficiary is entitled to receive EAPs for up to six months after ceasing enrolment, provided that the payments would have qualified as EAPs if the payments had been made immediately before the student’s enrolment ceased.
A qualifying educational program is an educational program at post-secondary school level, that lasts at least three consecutive weeks, and that requires a student to spend no less than 10 hours per week on courses or work in the program.
A specified educational program is a program at post-secondary school level that lasts at least three consecutive weeks, and that requires a student to spend not less than 12 hours per-month on courses in the program.
A post-secondary educational institution includes:
For RESPs entered into after 1998, the maximum amount of EAPs that can be made to a student as soon as he or she qualifies to receive them is:
Subject to the terms and conditions of the RESP, the promoter can supplement the $5,000 or $2,500 EAP by paying a portion of the contributions tax-free to the beneficiary.
HRSDC may, on a case-by-case basis, approve an EAP amount of more than the above limit if the cost of tuition plus related expenses for a particular program is substantially higher than the average. For information on how to request approval of an EAP of more than $5,000 or $2,500, promoters should call the Canada education savings program at 1-888-276-3624.
Accumulated income payments (AIPs) are amounts, usually paid to the subscriber, of the income earned from an RESP. An AIP does not include:
AIPs cannot be made as a single joint payment to separate subscribers.
An RESP may allow for AIPs when the following conditions are met:
Also, any one of the following three conditions must apply:
An RESP must be terminated by the end of February of the year after the year in which the first AIP is paid.
Promoters report AIPs in box 040 of a T4A slip, Statement of Pension, Retirement, Annuity and Other Income, and send a copy to the recipient of the AIP. The recipient has to include the AIP as income on his tax return for the year he receives it. An AIP is subject to two different taxes: the regular income tax and an additional tax of 20% (12% for residents of Quebec).
Regular tax - This is the tax you calculate when you complete your return. It is based on your total taxable income.
Additional tax - You calculate this tax separately, using Form T1172, Additional Tax on Accumulated Income Payments from RESPs. Include a completed copy of Form T1172 with your return for the year you receive the AIP. You have to pay the additional tax by the balance due date for your regular tax, usually April 30 of the year that follows the year in which you received the AIP.
Reducing the amount of AIPs subject to tax - You can reduce the amount of AIPs subject to tax if you are the original subscriber or, where there is no other subscriber, the spouse or common-law partner of a deceased original subscriber and you meet both of the following conditions:
You cannot reduce the AIPs subject to tax if you became a subscriber because of the death of the original subscriber.
By claiming an RRSP deduction, you reduce your taxable income, which reduces your regular tax. The RRSP deduction also reduces the amount of additional tax payable by reducing the amount of AIPs subject to tax (see Form T1172). If the amount of the RRSP deduction equals the amount of the AIPs, the taxes on the AIPs are zero.
Promoters usually have to withhold regular and additional taxes on AIPs. However, they do not have to withhold tax if both of the following apply:
Complete Form T1171, Tax Withholding Waiver on Accumulated Income Payments from RESPs, to ask the promoter to transfer the payment directly to your or your spouse's or common-law partner's RRSP without withholding tax.
The RESP under which Mary is an original subscriber allows AIPs. In July 2012, Mary received an AIP of $16,000. She completed Form T1171 to have $14,000 transferred directly by the promoter to her RRSP. Mary’s RRSP deduction limit for 2012 is $14,000. She did not make any other RRSP contributions during the year. She was a resident of Manitoba on December 31.
Mary completes Form T1172 to determine the amount of additional tax she has to pay for 2012 as follows:
|AIP for 2012||$||16,000|
|Amount Mary deducts for 2012 for RRSP contributions from an AIP (this amount cannot be more than $50,000 for all years)||-||14,000|
|Amount subject to the additional tax||=||$||2,000|
|Additional tax payable||=||$||400|
Mary reports the AIP of $16,000 on line 130 and the additional tax on line 418 of her 2012 tax return. She also claims the RRSP deduction of $14,000 on line 208 and attaches a copy of Form T1172 to her return.
If Mary had received the amount in January 2012 and transferred it to an RRSP (provided her RRSP deduction limit was sufficient) she could have decided to claim all or part of the deduction for the 2011 tax year. This would have been possible because the amount would have been transferred in the first 60 days of 2012.
However, had she done so, she would not have been allowed to reduce the additional tax because the amount transferred to her RRSP has to be deducted on the tax return for the year in which the amount is received.
That is, on her 2012 tax return, Mary would determine the additional tax payable based on the full $16,000 of the AIP. The additional tax is $3,200 ($16,000 x 20%).
Generally, where an individual becomes a beneficiary "new beneficiary" in place of another beneficiary "former beneficiary" we treat the contributions for the former beneficiary as if they had been made for the new beneficiary on the date they were originally made. If the new beneficiary already has an RESP, this may create an excess contribution.
An exception to the general rule applies in certain limited situations. The exception ensures that the contribution history of the former beneficiary is not added to the contribution history of the new beneficiary in the determination of whether the new beneficiary’s lifetime contribution limit has been exceeded. These situations are as follows:
In both situations, the contributions history of each beneficiary remains and applies for determining the lifetime contribution limit.
Most transfers from one RESP to another RESP will have no tax implications. This is the case when the transferring RESP and the receiving RESP have the same beneficiary. There are also no tax implications when a beneficiary under the transferring RESP has a brother or sister (under 21 years of age before the transfer is made unless the receiving plan is a family plan) who is a beneficiary under the receiving RESP.
In any other case, transfers can result in an excess contribution. This is because the RESP contribution history for each beneficiary under the transferring RESP is assumed by each beneficiary under the receiving RESP. We treat each contribution as if it had been made into the receiving RESP. In addition, we treat each subscriber under the transferring RESP as a subscriber under the receiving RESP. This means that he or she is liable for any tax on excess contribution.
Currently, a transfer of assets between individual RESPs may result in tax penalties and the repayment of the Canada Education Savings Grants and Canada Learning Bonds when the transfer occurs between plans held by siblings and the plan receiving the transfer amount is held by a sibling whose age exceeds 21.
Transfers of assets that occur after 2010; will allow these transfers without penalties and repayments if the beneficiary of a plan receiving the transfer of assets had not reached 21 years of age when the plan was opened.
Transfers can be made after 2013 from an RESP to an RDSP. In general terms, a subscriber of an RESP that allows accumulated income payments and a holder of an RDSP may jointly elect in prescribed form to transfer an accumulated income payment under the RESP to the RDSP if, at the time of the election, the RESP beneficiary is also the beneficiary under the RDSP.
To qualify for an RESP rollover, the beneficiary must meet the existing age and residency requirements in relation to RDSP contributions. As well, one of the following conditions must be met:
The accumulated income payment rollover over to an RDSP will not be subject to regular income tax or the additional 20% tax. The promoter of the RESP must file the election with the Minister without delay.
When an RESP rollover occurs, contributions in the RESP will be returned to the RESP subscriber on a tax-free basis. As well, Canada education savings grants and Canada learning bonds in the RESP will be required to be repaid to HRSDC and the RESP terminated by the end of February of the year after the year during which the rollover is made.
The investment income rolled over to an RDSP:
An investment income rollover cannot be made if the beneficiary:
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