It's Tax Season Again! Got RESP Questions?

(Updated - 1st published January 19, 2015)

It will soon be time to file that tax return. Every year, by the end of January, we start to get a number of questions from our clients who wish to know if and how to report the RESP on their tax return. Here’s a Q&A that will shed some light on how taxes affect RESPs.

Is there an annual deadline to invest in my RESP?

NO. Unlike a registered retirement savings plan (RRSP), there is no deadline to make contributions to an RESP before you file your tax return. However, if your financial situation allows it, we recommend you invest as much as you can before the end of a given calendar year (December 31st) to maximize the government grants to which your beneficiary is entitled.

Is the amount invested in an RESP deductable for tax purposes?

NO. The contributions made to a registered education savings plan (RESP) for your child are not deductible for tax purposes. However, they entitle your child to generous grants from the Government of Canada. Several provincial governments also offer RESP grants, the government of Quebec being among these.

In Quebec, every dollar invested in an RESP could be increased by 30 to 60% thanks to the combined federal and provincial grants. Your child could be eligible to 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). That’s a combined total of $12,800* to which your child could be entitled if you live in Quebec!

Will I be taxed on my RESP contributions?

NO. The RESP is an investment vehicle that allows you to save money and see it grow tax-free. The contributions you make to your plan are not taxable income at the time these are returned to you, the subscriber. The investment income, for its part, is not taxable until it is withdrawn from the RESP and paid as educational assistance payments (EAPs) to the beneficiary.

The EAPs made to the beneficiary cover any type of education-related expense (tuition, rent, groceries, etc.). These are taxable in the hands of the beneficiary (and not the subscriber) at his or her marginal tax rate. As most students have a low income, beneficiaries are likely to pay very little or no tax.