RESP Insights

New to Canada? Here’s what you need to know about RESPs.


Welcome to the land of the free. Whether you’ve been here a few months or a few years, you’ve probably already discovered some things about Canadians. We say sorry an awful lot. Many of us are pretty into hockey, baseball or skiing. And we love to meet new people, and give them lots of advice… maybe too much advice. (Sorry!)

Speaking of advice, has someone told you you may want to open a Registered Education Savings Plan (RESP)? Because that’s great advice.

What are RESPs?

They’re smart savings tools that help you prepare for the cost of your child’s post-secondary education. Here’s how they work: the subscriber, the person who wants to save for the child’s education, opens an RESP with a bank, a credit union or a super-convenient, digitally driven company that just focuses on RESPs—like us, CST Spark. With CST Spark, you can do everything online, so there’s no going to a branch, and your plan is managed for you based on the age of the child. You don’t need to be a citizen of Canada to open an RESP, but you and your child do need to be Canadian residents and have social insurance numbers.

The subscriber names the beneficiary or beneficiaries (your child/children), who will use the money for university, college or another training program. You can open an RESP for one child or more in the same family.

Save big with government grants

Yes, please. Once you set up your RESP, you can apply for government grants. (At CST Spark, we take care of this for you.) The Canada Education Savings Grant (CESG) for example is based on how much you contribute. Every year the Canadian government will match 20% of the first $2500 you contribute to the RESP. Over the course of saving in an RESP, you could qualify for a total of $7,200 from the government in CESG to help pay for post-secondary education. There are also additional government grants available to low-income families as well as some provincial grants in British Columbia and Quebec.

While in the RESP, both your contributions and the government grant money are invested in stocks, bonds, or other financial products. You can choose the investments yourself, with a self-directed RESP, or have your RESP provider invest and manage the money on your behalf. In other words, the contributions you make, and the government grants are invested to grow — just like your child seems to gain inches when you’re not looking.

Oh Canada! Oh the tax incentives!

You may not be able to shelter your child forever, but at least the earnings on your money can be sheltered from tax. While the money is in the RESP, you don’t have to pay any tax on the growth. When the money is taken out of the RESP—usually when the child begins post-secondary education—the money is taxed in the hands of the student who is often not earning very much income, so will likely only pay very little, if any, tax.

To RESP or not to RESP

If you plan on staying in Canada, an RESP is a great idea. Not only does an RESP encourage you to put away money for your child’s education, but the government rewards you for doing so, with grants and tax incentives. Your child can use the RESP money—including any earnings, the government grants, and your contributions—for education in Canada, in the United States or overseas, as long as the beneficiary remains a Canadian resident for tax purposes. [In other words, your child could choose to come home to Canada for the summers, and maybe pop in for a holiday here or there to see the family and enjoy a double-double from Tim Hortons.]

If there’s excess money in the RESP after your child finishes school, no problem. Once your child has used up the government grants and earnings; you can take back your original contributions, tax-free. (You may have to pay tax on any remaining earnings at the time of withdrawal, unless you transfer them to another tax-sheltered fund, such as a Registered Retirement Savings Plan.)

One reason to hesitate on opening an RESP is if your family might leave Canada before your child starts post-secondary school. The RESP subscriber can only make contributions, and receive government grants for a Canadian resident beneficiary. If you were to move the family to say, France (bonjour brie et baguette) before your child started post-secondary school, you would have access to your original contributions and possibly the earnings from your investment. If certain conditions are met, the earnings can be withdrawn as an AIP (accumulated income payment) but you’d likely be paying high taxes on it unless you can transfer the earnings to your or your spouse’s RRSP. Also, all government grant money will have to be returned.

The bottom line

An RESP is a smart way to invest in your child’s education, as long as you plan on staying in Canada at least until your child completes post-secondary education. And if you’re taking advice, we recommend you go with CST Spark (here’s why) and stick around in this beautiful country we call home. You may not get used to the cold, but you’ll learn Canada has a warm heart. Good luck, and happy saving.

Bright Plan is only sold by Prospectus. CST Spark is the distributor and Investment Fund Manager of Bright Plan.

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