Introduction to the Canada Education Savings Grant
 
In 1998, the Government of Canada announced an important new program - The Canada Education Savings Grant (CESG).  This grant helps parents, grandparents relatives and friends who select Registered Education Savings Plans as a means of building a nestegg for a child's post-secondary education.
Through the Canada Education Savings Grant, the Government of Canada pays 20 per cent on the first $2,000 (or less) you save each year (Certain retrictions apply for children 16 & 17).  This can add up to $400 per year (and a lifetime limit of $7,200) per child.
 
 
The Canada Education Savings Grant

You need to have a Registered Education Savings Grant (RESP) to obtain the Canada Education Savings Grant (CESG).
 
-  The amount of CESG is 20% of the first $2,000 (or less) saved in an RESP on behalf of a beneficiary each year.  (Any savings on behalf of a beneficiary in excess of $2,000 per year do not qualify for a grant).
 
-  An annual $2,000 contribution brings a yearly CESG of $400, with a lifetime limit of $7,200 per beneficiary.
 

CESG Eligibility

The following conditions must be met to obtain the CESG:
 
-  The subscriber has to provide the beneficiary's Social Insurance Number
-  The subscriber has to provide his or her Social Insurance Number
-  The beneficiary is a Canadian resident at the time of the contribution
-  Contributions are made prior to the end of the calendar year in which the beneficiary turns 17
 
Beneficiaries aged 16 and 17 are eligible if at least one of the following conditions are met:

$2,000 or more was contributed to RESPs (and not withdrawn) for the beneficiary by the end of the year the beneficiary
turned 15, or:
$100 or more was contributed to RESPs (and not withdrawn) in each of any four years in respect of the beneficiary before the end of the year the beneficiary turned 15.
In addition, as a transitional measure, beneficiaries who turn 17 in 1999 are eligible if they were a beneficiary of an RESP during any of the four years before 1998.

 
Canada Education Savings Grant Room

-  Starting January 1, 1999, all children residing in Canada began to accumulate "grant room" at a rate of $400/yr. until they reach 17 (includes the year the child turns 17).  Grant room accumulates whether or not a child is an RESP beneficiary.
 

Carry-Forward

-  If all contributions are made on behalf of a beneficiary in one year do not attract the full $400 of CESG, the unused portion of the CESG will be added to a beneficiary's CESG room and will be available for use in another year.  This means future contributions may attract up to $800 in a given year.
 

Repayment of the CESG

-  If the beneficiary does not pursue post-secondary education, and a replacement beneficiary cannot be found, the CESG must be repaid to the Government of Canada.
Under certain conditions, CESG rules permit:  reallocation of the grant between beneficiaries; replacing a beneficiary; and transferring RESPs between promoters.  Please call the CESG program for more details.
 

RESP Tax Matters

-  Contributions are not tax-deductable and are not taxed when returned to the subscriber.
-  Investment earnings inside an RESP grow tax sheltered.
-  Once the beneficiary is enrolled full time in an eligible post-secondary institution, Educational Assistance Payments may start.
-  These payments are taxable income for the beneficiary.
-  However, because a student typically has a modest income while studying, little or no tax will likely be paid on the Educational Assistance Payments.
-  Accumulated income payments, if not rolled over to a subscriber's RRSP, are taxed at the subscriber's normal tax rate plus 20%
 
 

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