Canada RESP Rules
Updated on April 10, 2025
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Table of Contents
What are the rules for opening RESP in Canada?
Generally, anyone can open an RESP as long as they have a Social Insurance Number (SIN). US citizens, Green Card holders, and non-residents can open an RESP for a beneficiary who is a Canadian resident.
For most plans, the relationship between the beneficiary and subscriber (the one who will open the RESP) will less likely matter. For family plans, however, the beneficiary should be related to the subscriber either by blood or by legal adoption.
For contributions, there is no minimum amount required to open. Subscribers are free to contribute any amount they wish as long as it is within the lifetime limit of CAD$50,000 which is technically the maximum contribution amount.
What exactly is an RESP?
A Registered Education Savings Plan (RESP) is a special savings account established by the Canadian government to help individuals or parents save money for a child’s post-secondary education.
At the same time, the government also contributes to the RESP account through grants. The most common grant tied to the RESP is the Canada Education Savings Grant (CESG).
This plan is greatly encouraged since the money inside the account grows tax-free, which can help children secure a future in their studies.
What is a lifetime limit?
A lifetime limit is the maximum total amount that can be contributed to a beneficiary across all RESP accounts and should not exceed CAD$50,000.
For example, if parents open a family RESP and grandparents open another one for the same child, the total between them cannot exceed CAD$50,000
Grants such as CESG, Canada Learning Bond, and provincial incentives are not included when computing for the lifetime limit of the beneficiary.
What are the types of RESPs?
There are different types of RESPs available, each with unique features and designed to cater to different family circumstances and financial goals:
- Individual RESPs: They are the most flexible for choosing a beneficiary as they don’t need to be related to you. But, you can only assign one beneficiary for this plan.
- Family RESPs: Your beneficiaries for this plan should be related to you by blood or through adoption. But allows you multiple beneficiaries.
- Group RESPs: This can also be termed a scholarship plan. You can pool your savings with other people for this one, and this is also one child per plan.
Ultimately, choosing the right RESP should be based on your unique situation. Considering your family structure and how much you can contribute can help you manage the account effectively.
How does CESG work?
Through the Canada Education Savings Grant (CESG), the government provides 20% on the first CAD$2,500 contributed to a child’s RESP each year. This means up to CAD$500 per year, whatever the family’s income level.
For low-income earners, there is an additional amount of CESG on top of the 20% which will depend on the adjusted family net income, as seen here:
- Less than CAD$55,867: 10% on the first CAD$500 of annual contributions.
- Between CAD$55,867 and CAD$111,733: 20% on the first CAD$500 of annual contributions.
So, depending on the family’s income level, beneficiaries might receive up to CAD$600 per year.
The CESG also has a lifetime limit of CAD$7,200 per beneficiary.
What is included in post-secondary education?
In order to receive RESP withdrawals, students should enter a post-secondary educational institution such as:
- College or university in Canada
- Trade school
- Apprenticeship program
- A university outside Canada that offers full-time courses at the post-secondary school level.
What are the withdrawal rules for RESP?
When it’s finally time for your child to head off to college or university, it’s time to tap into your RESP. That’s where Educational Assistance Payments (EAPs) come into play.
The EAP consists of the earnings on the contribution and the grants received (CESG, CLB, QESI). To start receiving EAPs, the beneficiary student must provide proof of enrollment in a qualifying educational program.
Here are the rules to start receiving EAPs:
- The beneficiary is enrolled in a qualifying educational program. OR
- The beneficiary should already be 16 years old and be enrolled in a specified educational program
It’s also crucial to remember that only the income and grants portion of the RESP can be paid out as EAPs. The contributions made to the RESP can be withdrawn tax-free by the subscriber at any time.
However, withdrawing contributions may affect the amount of EAPs that can be paid and could also lead to a requirement to repay some of the government grants.
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Are there limits for receiving EAPs?
Yes, when a student starts post-secondary school, there are limits on how much they can get from the RESP as Educational Assistance Payments (EAPs).
Full-time students can receive up to CAD$8,000 in the first 13 weeks. But after that, there’s no limit as long as they’re still in school.
As for part-time students, they can get up to CAD$4,000 every 13 weeks.’
Are EAPs taxed?
Yes, EAPs are taxed in the beneficiary’s name (student) and not the subscriber. It is still beneficial for them since students generally have a lower income which places them in a lower tax bracket. Additionally, they can claim tuition credits so they often pay little or no tax on EAPs.
What happens when the beneficiary doesn’t enter school?
In this case, there will be no EAPs unless the beneficiary is enrolled in post-secondary education. But you will have the option to withdraw your funds.
You can withdraw your contributions tax-free at any time, but the income earned in the plan may be subject to tax. Additionally, the grants that were contributed to the RESP will be returned to the government.
There is an option to transfer the name of the plan to another beneficiary as long as they are a Canadian citizen and are under 21 years old.
What are Accumulated Income Payments?
Accumulated Income Payments (AIPs) are the interest or profit portion made inside an RESP. AIPs are paid to the subscriber if the beneficiary doesn’t go to school and the RESP isn’t being used for education.
Normally, AIPs are taxed as ordinary income since they are the subscriber’s earned income. However, AIPs are also subject to an additional tax of 20% (12% for residents of Quebec). These are tax Implications associated with RESPs.
Is it possible to roll over an RESP?
Yes, this can be useful if you have individual RESPs for multiple children and one decides not to pursue post-secondary education. You can transfer RESP assets to another RESP account and this will also not trigger any tax obligation, provided that the beneficiary remains the same or is a sibling of the original beneficiary.
Just be wary of the accumulated amount. If this pushes the new plan over the limit, there could be penalty taxes for over-contributing.
Additionally, RESPs can be transferred to other accounts like RDSPs if qualified.
Are there special rules for changing beneficiaries?
Yes, it depends if the new beneficiary is a sibling of the original beneficiary or not. For siblings, the rules above apply.
If the new beneficiary is not a sibling, you might have to repay the government grants and bonds. Additionally, the income earned in the RESP could become taxable.
What are the anti-avoidance rules for RESPs?
These are special rules the Canada Revenue Agency (CRA) uses to prevent people from misusing RESPs to avoid paying taxes. The CRA enforces special taxes if individuals take unfair advantage of RESPs’ tax benefits.
For example, if the beneficiary is using EAPs for anything other than education purposes (tuition fees, educational expenses) or they invest RESP money in prohibited or risky investments.
The rule is that everyone is responsible if the rules are broken, you can be denied tax-free growth of the RESP, you could lose government grants or bonds, and there will be special taxes for you to pay.
What happens when I over-contribute to an RESP?
If you go over that amount, even by accident, you can be charged a penalty tax which is 1% per month on the extra amount, until you take it out.
