The RESP is an education savings vehicle that involves four parties: the subscriber, the beneficiary, the promoter and the trustee.

When the subscriber enrolls in the RESP, he/she must designate a beneficiary to use the investment income generated by the plan, the Canada Education Savings Grants (CESGs) paid by the Canadian government and the grants paid by certain provincial governments. This income is to be used as financial aid so that the beneficiary can pursue his/her post-secondary education.

No contributions can be made after December 31 of the 31st calendar year following the plan's creation, and the plan must cease to exist no later than December 31 of the 35th year following the plan's creation.

There are three types of plans offered, the individual plan, the family plan and the Group plan depending upon the promoter. Here is a brief description of each plan Cash value interest or earnings accumulate tax-free or tax deferred, depending on whether gains are distributed at death or during lifetime.

Individual plan:

This plan allows the subscriber to designate one beneficiary per plan. The beneficiary may or may not be related to the subscriber by blood or adoption.

Family plan:

This plan allows the subscriber to designate several beneficiaries. However, they must all be linked to the subscriber by blood or adoption and be under 21 years of age. Moreover, the special feature of the family plan is that all children from the same family can be combined in a single education savings plan. The family plan is more suited to parents and grandparents whose family is complete so that they can take advantage of the longest possible accumulation period for each child. The family plan also offers the flexibility of distributing the amounts among the children as each one begins their post-secondary studies

Group Plan:

Group plans work differently from individual and family plans, and each plan has its own rules. They also tend to have higher fees and more restrictive rules. You can open a group plan for one child. They don't have to be related to you. You must make a minimum deposit when you open the plan. Your child shares in the pooled earnings of investors with children the same age. How much your child receives depends on how much money is in the group account, and the number of children in the group who will be starting post-secondary education. Group plans often have additional rules about how much and how often your child can take EAPs, and which education programs are eligible. Know the rules before you open a group plan.Policy owners can use life insurance policies as collateral or security for personal loans.Guaranteed ceiling on mortality and expense charges and guaranteed floor on interest credited to cash values.

Companies that offer RESPs are called promoters. There are 2 main types of promoters:

1.Financial institutions-includes banks, credit unions, mutual fund companies, insurance and investment firms and trust companies. They offer individual and family plans.

2.Scholarship plan dealers-companies that only sell RESPs. They offer individual, family plans and group RESPs.

There are more than 85 RESPs providers across Canada. It is important to ask questions regarding the fees that you are expected to pay, investment options you have in the RESP plan, if you have to make regular contributions and what happens if you miss the contribution, what happens if beneficiary does not continue with their education after the high school, what if you want to cancel the plan, what will happen to your own contributions in case you cancel the plan and much more. We highly recommend you to sit down with an expert who can explain you the RESP in detail so that you can make informed decision. Our licensed advisors can educate you on different RESP plans available in Canada and provide you accurate information so that you make the right decision for your child's post-secondary education

RESP contributions are not tax deductible from the subscriber's income. However, as with an RESP, the accumulation of investment income is tax-free as long as it remains in the plan. Also, the subscriber may not deduct from his/her income interest paid on a loan taken out to make RESP contributions.
The EAPs, which represent the investment income portion, the CESGs paid, the grants paid by certain provincial governments and the education bonus if any, must be included in the beneficiary's annual taxable income during his/her post-secondary studies. Since students are generally are low income earners, the amount of taxes will probably be fairly low.

RESP contributions are not tax deductible from the subscriber's income. However, as with an RRSP, the accumulation of investment income is tax-free as long as it remains in the plan. The contribution period corresponds to a calendar year, i.e. from January 1 to December 31. Also, the subscriber may not deduct from his/her income interest paid on a loan taken out to make RESP contributions. Finally, note that the subscriber’s contributions are not protected against potentialcreditors.

The contribution limits set by the federal government are as follows:

• Annual limit: None.
• Total limit: $50,000 per beneficiary, for life
• If the child is the beneficiary of more than one RESP, it is the subscribers' responsibility to ensure the contribution limit set by the federal government is not exceeded. In addition, the subscriber’s contributions are not protected from creditors.

A 1% monthly tax penalty applies to contributions made on behalf of a beneficiary in excess of the total limit set by the federal government. The tax penalties are payable by each subscriber on his/her share of the excess contributions that are not withdrawn by the end of the month. The subscribers are solely responsible for ensuring that the contribution limit is respected.
The penalty taxes payable by each subscriber must be paid to Canada Customs and Revenue Agency within 90 days following the end of the year in which the excess contributions were made.

• Canada Education Savings Grant (CESG) – Lifetime limit is $7200 each child
• Canada Learning Bond (CLB) - Lifetime limit is $2000 each child

Canada Education Savings Grant (CESG)

In January 1998, the federal government implemented the CESG for all contributions made to an RESP. This is a very beneficial program as it allows for a concrete and substantial increase in savings designated for the post-secondary education of beneficiaries.

Basic CESG

The basic Canada EducationSavings Grant (CESG) will top upyour annual contribution by 20%, up to a maximum of $500 eachyear for each beneficiary.You need to contribute $2,500 a year to get the full grant of $500 each year. Your child can carry forward unused grant contribution room until they turn 17. Thelifetime limit for the grant isgenerally $7,200.

Additional CESG

Depending on your income, the government may top up your contribution by an extra 10% or 20% on the first $500 of annual RESP contributions made on or after January 1, 2005. If your net family income in 2016 is:

• $45,282 or less – you could receive up to $100 extra (20%) in grant money on the first $500 you contribute,
• Between $45,282 and $90,563 – you could receive up to $50 (10%) extra in grant money on the first $500 you contribute.

Canada Learning Bond (CLB)

The Canada Learning Bond (CLB) is a grant offered by the government of Canada to help low income families to begin saving early for their child’s post-secondary studies. The RESP promoter applies to the federal government for the CLB on behalf of the subscriber. The prescribed form, duly completed, must be sent to head office.

The CLB is paid directly into the RESP of the child who is the named beneficiary. CLB Amount

• $500 the first year of eligibility
• $100 in each subsequent year of eligibility until the child reaches 15 years of age.
• The cumulative limit of CLB offered to a child can therefore reach $2,000.

Using the CLB

When a beneficiary is registered for a qualifying post-secondary education program, the CLB, CESG and other government grant amounts as well as the return obtained on the amounts invested in the RESP can be paid to him/her as Educational Assistance Payments (EAP). Each EAP contains a specified amount from the CLB.
If the beneficiary doesn’t pursue post-secondary studies, the CLB must be reimbursed to the government of Canada
The CLB cannot be used by another child

Depending upon the provider you choose to set up RESP, option to invest will vary. Here are some of the examples:

• Savings
• accounts Stocks
• GICs
• Mutual funds
• T-bills
• Exchange trade funds
• Bonds
• Segregated funds

GIC products are low risk and have fixedreturns. Mutual funds and stocks may offer potentially greater returns, but they are riskierthan GICs because you can lose some or all of your investment if the value falls.

It is important talk with licensed agent to discuss the options before you set up the plan. Agent must identify your tolerance of risk before recommending you any investments. Make sure you understand all the available options to make the informed decision

The following types of institutions are considered by the federal government as being designated post-secondary educational institutions:

• A university, college (CEGEP) or any other teaching institution located in Canada, including some technical and professional training schools, which has been certified by the Lieutenant-Governor-in-Council of a province as a certified educational institution in application of the Canada Student Loans Act, or recognized by the minister of Education of Quebec for purposes of Quebec’s student loan and scholarship legislation;
• A teaching institution in Canada recognized by the minister of Human Resources and Skills Development that offers non-credit courses aimed at providing or enhancing the skills required to exercise a profession;
• A foreign university, college or other teaching institution that offers post-secondary level courses, if the beneficiary is registered for a minimum of 13 consecutive weeks.

Note: There is no exhaustive list of acceptable programs or institutions. Contact the district tax office to obtain confirmation that an institution is recognized by the Human Resources Development Minister.

A qualifying educational program meets the following criteria:

• An educational program that lasts for a minimum of 3 consecutive weeks;
• The student must devote a minimum of 10 hours per week to courses and homework;
• While participating in the educational program, the student is not receiving any employment income (with the exception of temporary or part-time work to help pay for his/her studies);
• It is not connected to the student's employment in any way.

What are the options available whenyour child doesn't continue their education?

You have following four options

• 1. You can keep the RESP open – An individual or family RESP can stay open for 36 years. If your child doesn't continue their education right away, you can keep the plan open in case they change their mind. However group RESP may have rules and restrictions.it is always a good idea to check before setting up a RESP.
• 2. You can transfer the money to another beneficiary-you may have the option to naming of another beneficiary under individual plan. If it was set up as family plan, you may choose the earnings to pay for the education of another child under a plan. If it was set up as group plan, you can check with the RESP promoter if they allow changing the beneficiary or allow you to change the plan.
• 3. Transfer the money to your RRSP- The subscriber may transfer the accumulated income from RESP to his/her RRSP or to a spousal RRSP, without having to pay taxes on the amount, as long as the subscriber has unused contribution room.The maximum amount that is allocated for transferred accumulated
• 4. Close the RESP- you can choose to close your RESP plan. Here is what would happen in that case
• Your Contributions–Your contributions are returned to you. You don’t have to pay tax on any contributions that are withdrawn since your contributions are made with after tax money.
• CESG and CLB– You must return any grants to the government — this money can only be used to pay for post-secondary education and cannot be used for any other purpose.
• Investment earnings: you are entitled to investment earnings depending upon the RESP
• 1. Individual or family RESP – You can get your investment earnings out of the plan if it has been open for at least 10 years and the beneficiaries have not pursued an education by the time they are 31 years old. The plan subscriber has to pay tax on any investment earnings taken out of the plan, plus a 20% penalty.
• 2. Group RESP – You do not get back your investment earnings. They stay in the plan and are shared with the other plan members in form of scholarship or other forms to increase their payments