This page addresses two registered plans that are supported by direct federal (and in some cases provincial) contributions in addition to tax deferral: the Registered Education Savings Plan (RESP), governed by section 146.1 of the Income Tax Act and the Canada Education Savings Act, and the Registered Disability Savings Plan (RDSP), governed by section 146.4 of the Income Tax Act and the Canada Disability Savings Act. Contributions to either plan are not deductible, but investment income, grants, and bonds accumulate on a tax-deferred basis.

REGISTERED EDUCATION SAVINGS PLAN (RESP)

Parties and plan types

• Subscriber: the person who enters into the plan and makes contributions, typically a parent or grandparent.

• Beneficiary: the person for whom post-secondary education savings are accumulated; a Social Insurance Number and Canadian residency are required for government incentives.

• Promoter: the financial institution or group plan dealer that administers the plan.

• Individual plan: one beneficiary, who need not be related to the subscriber.

• Family plan: one or more beneficiaries, each connected to the subscriber by blood or adoption; permits income and grants to be shared among siblings.

• Group plan: pooled by age cohort under the terms of a scholarship plan dealer, typically with fixed contribution schedules and enrolment fees.

Contribution limits

• Lifetime contribution limit of $50,000 per beneficiary, aggregated across all plans for that beneficiary.

• No annual contribution limit.

• Contributions above the lifetime limit are subject to a tax of 1% per month, payable by the subscriber.

• Contributions may be made for up to 31 years after the plan is opened; the plan must be collapsed by the end of its 35th year (longer limits apply to beneficiaries eligible for the disability tax credit).

Canada Education Savings Grant (CESG)

• Basic CESG: 20% of the first $2,500 of annual contributions, to a maximum of $500 per year.

• Additional CESG: an additional 10% or 20% on the first $500 of annual contributions for beneficiaries in low- and middle-income families, based on adjusted family net income.

• Unused basic grant room is carried forward; up to $1,000 of CESG may be paid in a single year where carried-forward room exists.

• Lifetime CESG maximum: $7,200 per beneficiary.

• The grant is payable until the end of the calendar year in which the beneficiary turns 17. Contributions in the years the beneficiary turns 16 or 17 attract the grant only if minimum contribution conditions were met before the beneficiary turned 16.

Canada Learning Bond (CLB)

• Available to beneficiaries born on or after January 1, 2004 whose primary caregiver receives the Canada Child Benefit at the income levels prescribed for the bond.

• $500 in the first eligible year and $100 for each subsequent eligible year up to age 15, to a maximum of $2,000.

• No personal contribution is required; an RESP must be opened to receive the bond. Eligible individuals may request the bond retroactively up to the day before age 21.

Provincial incentives

• British Columbia Training and Education Savings Grant: a one-time grant of $1,200 for eligible children born in 2006 or later, applied for between the ages of six and nine.

• Quebec Education Savings Incentive (QESI): a refundable tax credit of 10% on the first $2,500 of annual contributions, with an enhanced rate for lower-income families, deposited directly into the RESP.

• Other provinces do not currently provide an active RESP grant.

Withdrawals

• Post-secondary education payments (PSE): a return of contributions to the subscriber or beneficiary, not taxable.

• Educational assistance payments (EAP): grants, bonds, and investment income paid to a beneficiary enrolled in a qualifying educational programme; taxable to the student, who typically has low income. During the first 13 consecutive weeks of enrolment, EAPs are limited to $8,000 for full-time programmes and $4,000 for part-time programmes.

• Accumulated income payments (AIP): investment income paid to the subscriber where no beneficiary pursues post-secondary education, subject to conditions. AIPs are taxable at the subscriber's marginal rate plus an additional 20% tax (12% for Quebec residents, plus Quebec tax). Up to $50,000 may be transferred to the subscriber's or spouse's RRSP where deduction room is available, avoiding the additional tax.

• Unused grants and bonds must be repaid to the government when the plan is collapsed or when contributions are withdrawn other than for education.

REGISTERED DISABILITY SAVINGS PLAN (RDSP)

Eligibility

• The beneficiary must be eligible for the disability tax credit (approved Form T2201), resident in Canada when the plan is opened, and hold a Social Insurance Number.

• A plan may be opened up to December 31 of the year the beneficiary turns 59.

• The holder is the beneficiary (if of age and contractually competent), a parent, legal guardian, or, in prescribed circumstances, a qualifying family member.

• Only one RDSP may exist for a beneficiary at any time.

Contributions

• Lifetime contribution limit of $200,000 per beneficiary, with no annual limit.

• Contributions may be made by anyone with written authorization of the holder until the end of the year the beneficiary turns 59.

• Tax-deferred rollovers from a deceased parent's or grandparent's RRSP or RRIF, and transfers of RESP investment income (where the beneficiary is the same), are permitted and attract no grants.

Canada Disability Savings Grant (CDSG)

• Matching grant on contributions of 300%, 200%, or 100% depending on contribution amount and the beneficiary's family income, to a maximum of $3,500 per year.

• Lifetime maximum of $70,000.

• Payable until December 31 of the year the beneficiary turns 49.

• Unused entitlements may be carried forward for up to ten years.

Canada Disability Savings Bond (CDSB)

• Up to $1,000 per year for low-income beneficiaries; no contribution is required.

• Lifetime maximum of $20,000; payable until the year the beneficiary turns 49, with a ten-year carry-forward.

Assistance holdback amount and repayment

• Grants and bonds received in the ten years preceding a withdrawal constitute the assistance holdback amount.

• Where a withdrawal is made, the plan is closed, the beneficiary ceases to be DTC-eligible, or the beneficiary dies, grants and bonds may be repayable. For withdrawals, the proportional repayment rule requires repayment of $3 of grants and bonds for every $1 withdrawn, up to the holdback amount.

Withdrawals

• Disability assistance payments (DAP): one-time or periodic payments.

• Lifetime disability assistance payments (LDAP): annual payments that, once begun, must continue until the plan is terminated or the beneficiary dies; they must begin no later than the end of the year the beneficiary turns 60, subject to an annual maximum based on life expectancy.

• The contribution portion of each payment is not taxable; the grant, bond, and investment income portion is taxable to the beneficiary.

• RDSP payments do not reduce federal income-tested benefits, and are fully or largely exempt from provincial and territorial social assistance calculations.

• Where the beneficiary ceases to qualify for the disability tax credit, the plan may remain open, but no new grants or bonds are paid.