How does the RESP works?

RESP is an individual education savings scheme which involves four different parties which are the subscriber, the beneficiary, the promoter and the trustee.

The subscriber is the one who keeps contributing to the RESP plan without fail and makes savings.

The beneficiary is the one who is designated by the subscriber to get all the benefits of the RESP scheme in the form of educational assistance at time of higher education.

The promoter is the company which offers the plan and manages it throughout the years.

The trustee is the Company, which holds the amount invested and adds the additional advantages offered by the federal government to the RESP plan.

The subscriber decides to enroll for the RESP and invests according to the plan, by designating the beneficiary who will benefit from the investment made as per the plan. In addition to the investment made, the additional amount will be added by CESGs paid by the Canadian government and the education bonus paid by the Company. The investment will be made available in the form of financial aid at the end of the specified time duration which will help the beneficiary for higher education.

Does the tax implication effects the amount deposited in RESP?

The tax is not implacable on the subscriber’s income like the other investment plans such as RRSP.  The amount invested in RESP as well as the loan taken by the subscriber to contribute in the RESP also remains tax-free.

Educational Assistance Payments (EAPs) represent part of the investment, the Canadian Education Savings Grants and the educational bonus which offers benefit to the children which comes under annual taxation but the tax remains fairly low.

 

Who can subscribe for the RESP?

Any individual who is Canadian, having address and the social insurance number can subscribe to the RESP. Only the individuals are eligible to subscribe for the RESP and no companies or trust can be allowed.  Married couple can act as joint subscribers and insurance agent should be a license holder.

The subscriber or the joint subscribers can have several RESP subscriptions for a single child as beneficiary or can have several subscriptions for number of beneficiaries.

 

Can you change the subscriber?

Subscriber can be changed by the spouse or former spouse who has initially subscribed for the RESP.  In case of divorce, written permission is needed to make any changes in the subscription.

In case of subscriber’s death, the person who inherits subscriber’s assets should continue as a subscriber and keep depositing the monthly payments; otherwise the plan should be surrendered.  The subscription can be changed easily without any fees or tax.

 

Who can be the beneficiary?

As per the rule the beneficiary should be Canadian resident and having a social insurance number before the subscribing to the policy.

The child can be a beneficiary to more than one RESP which can be possible when both parents and grandparent can subscribe to different RESPs for the single child.

 

Can the beneficiary be changed?

The beneficiary can be changed to siblings by the subscriber.

 

How can be the previous contribution and grants handled when the beneficiary is changed?

When a beneficiary under RESP is replaced by another, the contributions made for the former beneficiary will be considered for the new beneficiary.

The following conditions are needed to be satisfied for effective beneficiary contribution limits:

  1. The new beneficiary should be brother or sister of the former beneficiary having age limit less than 21 years.
  2. Both the beneficiaries new and former should be either related to subscriber by blood or by adoption.

In case, if the new beneficiary is already having RESP from previous subscriber then it should be added with new RESP investment amount and calculated as the future contribution.