Education Savings Grant & Learning Bond
Posted 16 Sep 2016 by Rick Irwin, CFP, CLU
One of the primary benefits of opening an RESP is the government grants that are available through this plan. The Canada Education Savings Grant is open to all Canadians and the Canada Learning Bond is a bond designed for lower income families:
Canada Education Savings Grant
The CESG is a matching government grant of 20% for every dollar deposited into an RESP, up to annual limits. A beneficiary qualifies for the CESG until the end of the calendar year they turn 17. In order to receive CESGs after the end of the calendar year they turn 15, the following conditions must be met:
- A total of at least $2,000 must have been paid into an RESP for that child OR
- At least $100 must have been paid into an RESP in any 4 previous years (they don't have to be consecutive years).
While the maximum that can be contributed to an RESP on behalf of one beneficiary is $50,000, the maximum amount of grants that will be paid is $7,200. In other words, only the first $36,000 in contributions will attract grants. Some advisors advocate putting in the full $50,000 even if there are no government grants as there will likely be no tax payable by the beneficiary on the withdrawals.
There is an annual limit of $500 in grants payable per year (which would require a $2500 contribution to achieve). However, unused RESP contribution room carries forward and you can “double up” payments in any one year to receive grants on contribution room that was earned in a prior year. The maximum you can pay in one year and receive the CESG is $5000; anything beyond $5000 in any one year will not attract CESGs even if there is still unused contribution room available.
Johnny is born in 2013. His parents don’t make any contributions that year or the next year but start contributions in 2015. He has $5000 in unused room from 2013 and 2014. They can invest $5000 a year for 2015 and 2016 and receive grants on all of what they contribute: the $5000 in 2015 for 2013 and 2015 and the $5000 in 2016 for 2014 and 2016.
Canada Learning Bond
On top of the CESG, the CLB provides an additional $2,000 per child to help families with modest incomes save with an RESP. To qualify for the bond, you must meet the following criteria:
- Your family income in 2016 must be less than $45,282 a year.
- Your child must be born after December 31, 2003.
- Your family must receive the National Child Benefit under the Canada Child Tax Benefit (also known as family allowance).
You don't have to make any contributions to the RESP to qualify. If your child doesn't qualify for the bond when you open the RESP, you can apply later if your circumstances change.
The amount of the bond is as follows:
- $500 for your child at birth and an extra $25 to cover the costs of opening an RESP, and
- $100 for each year your family gets the National Child Benefit until your child turns 15.