A Registered Education Savings Plan, or RESP, is an investment vehicle used by parents to save for their children’s post-secondary education in Canada. The principal advantages of RESPs are the access to the Canada Education Savings Grant (CESG) and a source of tax-deferred income.
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Canada Education Savings Grant (CESG)
Employment and Social Development Canada (ESDC) 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 CESG money will be deposited directly into the child’s RESP.
Who qualifies for the basic CESG
No matter what your family income is, ESDC pays a basic CESG of 20% of annual contributions you make to alleligible 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.
Who qualifies for the additional CESG
ESDC 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 2013, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under18 years of age is:
40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $43,561 or less; and
30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $43,561 but is less than $87,123.