Education

As education costs continue to rise and outpace inflation, it is increasingly more important to start saving early for a child’s post-secondary education. To give an idea of cost, average undergraduate tuition in 2017-2018 was $6,571 (StatsCan) and this does not include accommodation, meals or books. There are various ways to save for a child’s post-secondary education, however the most attractive option is via a Registered Education Savings Plan (RESP) which can grow tax free and attract government grants.

Registered Education Savings Plan (RESP)

RESPs are an excellent savings vehicle to provide for your child’s education. Funds invested into an RESP attract government grants and grow tax free but no tax deduction is received on contributions (unlike an RRSP contribution). There are two types of plans, individual and family; the family plan is generally used for families with more than one child (or expecting to have more than one child).

Canada Education Savings Grant (CESG)

The Canada Education Savings Grant (CESG) is available which provides a 20% grant on the first $2,500 invested per year into an RESP – up to a maximum lifetime CESG of $7,200. For example a $2,500 RESP contribution will attract $500 in CESG giving the beneficiary an excellent start with $3,000 invested. For families of modest income, additional CESG and the Canada Learning Bond (CLB) may also be available, providing further grant money for education purposes.

Withdrawals

Once your child has enrolled into post-secondary education, funds may be withdrawn from the RESP account. There is a wide range of qualifying education programs including trade schools, colleges and universities. Upon withdrawal the CESG, CESG growth and principal growth are taxed as income to the beneficiary (ie the student) – students generally have little income and therefore will pay little or no tax. There are no taxes due on the withdrawal of the original principal.

If you child doesn’t pursue post secondary education…

The plan can stay open for 36 years so you may want to wait and see. In some cases an alternate beneficiary can be named. However, if you know your child won’t be pursuing post secondary and another beneficiary is not an option you can get your entire original principal back without penalty. The CESG must be repaid to the government. The growth on the principal and CESG can be rolled to an RRSP (maximum rollover limits apply) or the growth may be withdrawn as cash and taxed as income plus a penalty tax.

For additional information on RESPs, CESGs, education costs, and much more; please visit the CanLearn Government of Canada website:
www.canlearn.ca