The government of Canada adds to your savings in a Registered Education Savings Plan (RESP) with the Canadian Education Savings Grant (CESG). The CESG is a financial incentive for parents, family, and friends to save for a child's education after high school. The grant is paid directly into the child's RESP and will not be included in the annual and lifetime contribution limits for the beneficiary. The life time limit for any one beneficiary is $7,200.
The CESG is equal to 20 per cent of the first $2,500 ($2,000 before 2007) of annual contributions to an RESP (up to a maximum of $500 per year per child) for the benefit of children under 18 years of age. For missed years, there are carryforward provisions that allow you to catch up on missed CESGs by up to $500 per year in future years. For lower and middle income families, the CESG rate is increased to 40 per cent for families with income under approximately $37,000, and 30 per cent for families with income between approximately $37,000 and $74,000, for the first $500 of annual contributions. The total CESG per beneficiary per year is capped at $1,000, or 20 per cent of the unused CESG room, whichever is less.
The $4,000 annual limit for RESP contributions is eliminated and the overall lifetime contribution limit is increased to $50,000 (from $42,000) per beneficiary, starting in 2007. When more than $2,500 is contributed in a year, the excess contribution does not carry forward for the purposes of the CESG.
If the beneficiary does not use the CESG for education, the grants must be repaid to the government.
The CESG will only be available for a 16 or 17 year old if the RESP contributions (net of any withdrawals) made before the year the child turned 16 either totaled $2,000 or were at least $100 per year in any four years.
Set up and make contributions to an RESP for your children to qualify for the CESG.
Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.