May 21, 2014
An RESP (or registered education savings plan) is an investment vehicle specifically designed to accumulate tax-free savings funds for a child's post-secondary education. Both governments invest with you! Did you know that every dollar invested in an RESP could be increased by 20% to 60%1 thanks to the generous grants offered by both governments?
Your child could receive up to $7,200 from the Canada Education Savings Grant (CESG), up to $3,600 from the Quebec Education Savings Incentive (QESI), and up to $2,000 from the Canada Learning Bond (CLB)2. Altogether, your child's education savings could be increased by up to $12,800 ($9,200 in the case of New-Brunswick)3!
The government grants and the investment income earned on the contribution and grant amounts are paid out to the beneficiary as educational assistance payments (EAPs) once the child is enrolled in an admissible post-secondary program of study. These payments enable your child to pursue a full-time vocational, college or university program of study, and are used to cover various education-related expenses, such as housing, food, transportation fees, etc.
Various sources4 indicate that, in 2033, it could cost over $154,000 to complete two years of CEGEP and three years of university in Quebec (living expenses included). That's why it's so important that parents begin planning early for the education of their children and invest in an RESP as soon as possible. The sooner they start saving, the longer their contributions and government grants will grow, and the higher the EAPs will be.
What exactly are the government grants offered to the beneficiary of an RESP?
The Canada Education Savings Grant (CESG) is a government program introduced as a means of encouraging parents, grandparents and relatives to save for a child’s post-secondary education. This incentive is as follows:
Basic CESG: Since 1998, this federal grant increases RESP contributions by 20% and applies to the first $2,500 contributed annually, regardless of family income.
Additional CESG: Since 2005, it is also possible to receive the additional CESG when the RESP's beneficiary is from a family with a low or moderate income. The additional CESG is calculated annually and applies to the first $500 contributed in the RESP, and varies according to the subscriber’s net family income.
The Canada Learning Bond (CLB) is a contribution from the federal government for low-income families. It is specifically intended for children born after December 31, 2003, from families who receive the National Child Benefit Supplement (NCBS). The CLB consists of an initial $500 payment to the RESP of a beneficiary whose family receives the NCBS. Subsequently, the beneficiary may be eligible to receive up to 15 additional CLB payments of $100 (until the age of 15). When the child reaches the age of 16, the CLB could total $2,000.
The Education Savings Inventive (QESI) was introduced in 2007, including through numerous representations made to the Government of Quebec by Kaleido. This incentive is a tax measure that encourages parents, grandparents and relatives to save in an RESP for a child’s studies. This incentive is as follows:
Basic QESI: This Government of Quebec grant increases RESP contributions by 10% and applies to the first $2,500 contributed annually, regardless of family income.
Additional QESI: Families with a low or moderate income are also entitled to the additional QESI. This grant applies to the first $500 contributed to the RESP per fiscal year. The additional QESI rate varies based on the net family income of the subscriber.
Beneficiary’s eligibility for government grants
Certain eligibility conditions must be met before children qualify for these attractive government grants:
- To possess a valid Social Insurance Number (SIN);
- To be the beneficiary of an RESP;
- To be a Canadian resident (Quebec resident in the case of the QESI).
Know that unused contribution room (CESG and QESI) can be deferred to subsequent years.
To enjoy these generous government grants or to learn how to maximize the grant amounts paid into your child’s RESP, contact us!
1. The Canada Education Savings Grant (CESG) is equal to 20% to 40%. The Quebec Education Savings Incentive (QESI) is equal to 10% to 20%. Amounts based on net family income. The lifetime limit per beneficiary is set at $7,200 for the CESG and $3,600 for the QESI. Certain conditions apply. Refer to your representative or the prospectus.
2. The Canada Learning Bond (CLB) can reach up to $2,000, for a child born after December 31, 2003, from a family who receives the National Child Benefit Supplement.
3. The QESI is not available to New-Brunswick residents.
4. Cost to complete two years of CEGEP and three years of university in Quebec, housing included. Yearly increase of 2.2% based on the average costs in 2013. Source: Ministère de l’Éducation, du Loisir et du Sport, Ministère de la Famille et des Aînés, Statistics Canada and CMHC.
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