Take Advantage of the CESG
To help modest-income families better save for their children's post-secondary education, federal and provincial governments have several programs available:
- Canada Learning Bond (CLB)
- Enhanced CESG (E-CESG)
- Alberta Centennial Education Savings (ACES)
- Quebec Education Savings Incentive (QESI)
1. Canada Learning Bond
The Canada Learning Bond (CLB) is a Government of Canada incentive that entitles eligible RESP beneficiaries to a grant (CLB) of up to $2,000. An initial CLB of $500 is provided for the first year of entitlement. Additional annual CLBs in the amount of $100 per year, for 15 years, may be available should the beneficiary meet eligibility requirements.
CLBs are available only to children born on or after January 1, 2004. The beneficiary must be a Canadian resident and qualify each year, by meeting the following requirements:
- The beneficiary must be 15 years of age or younger in that year.
- The beneficiary's parent or primary caregiver is entitled to the National Child Benefit (NCB) supplement for at least one month of the benefit year.
- The beneficiary's public primary caregiver is entitled to receive payments under the Children's Special Allowance Act for a child in care, for at least one month of the benefit year.
- A Social Insurance Number (SIN) exists for the beneficary, subscriber and primary caregiver.
- An Individual or Family Plan (where all beneficiaries are siblings) RESP has been opened on behalf of the beneficiary.
Note: the beneficiary isn't actually entitled to the money. The beneficiary's eligibility means the bond can be deposited to the RESP but it is up to the subscriber to provide instructions for the withdrawal that will result in the bond finding its way into the beneficiary's hands. At no point does the beneficiary have a unilateral right to demand payment of the bond to him or her.
How it works
The CLB is deposited directly into the beneficiary's RESP once the application has been completed by the subscriber and submitted through the RESP provider. To offset any one-time incidental expenses arising from the opening of an RESP account, an additional $25 will be paid into the RESP to which the initial CLB of $500 is deposited. A CLB does not count towards the lifetime RESP and Canada Education Savings Grant (CESG) contribution limits nor will it attract a CESG.
Like other assets within an RESP, CLB monies can grow or earn income on a tax-deferred basis within the RESP. The child will be able to fund his or her post-secondary education by withdrawing educational assistance payments (EAPs) from the RESP. EAP withdrawals will be apportioned between the CLB, the CESG and investment income earned in the RESP.
If the beneficiary doesn't pursue post-secondary education, the CLB is returned to the Government of Canada - unlike the Canada Education Savings Grant, which can be used for a sibling's education.
2. Canada Education Savings Grant Enhancement (Enhanced CESG)
To further assist lower-income families in saving for post-secondary education, Human Resources and Social Development Canada (HRSDC) will pay additional CESG each year for each qualifying beneficiary. The additional amount is based on net family income and can change over time as net family income changes.
Starting in 2005, additional CESG may be paid on the first $500 contributed to an RESP for a beneficiary aged 17 or under (CESG eligibility for 16 and 17 year olds is subject to minimum contributions made in previous years).
The family income level used to qualify for the Enhanced CESG is the family net income that determines eligibility for the Canada Child Tax Benefit for January of that calendar year.
How it works
The Basic CESG paid to an RESP is 20% of contributions made to the RESP in respect of a beneficiary. The additional CESG is determined by using the net family income that qualifies for the National Child Care Benefit (NCB). Since the NCB supplement is determined on a 12-month benefit cycle beginning in July based on family income for the preceding year, 2011's additional CESG is based on both 2009 and 2010's net family income.
Additional CESG entitlements:
- Annual limit of an additional 20% on the first $500 (or less) contributed to an RESP per beneficiary per year if the beneficiary's family has qualifying net income for the year of $41,544 or less.
- Annual limit of an additional 10% on the first $500 (or less) contributed to an RESP per beneficiary per year if the beneficiary's family has qualifying net income for the year that is more than $41,544 but less than $83,088.
These family income thresholds are quoted in 2011dollars and will be updated each year based on the inflation rate.
The $500 contribution limit for Enhanced CESG applies jointly to all RESPs of which the child is the beneficiary. Any unused access to the Enhanced CESG in a particular year (i.e., less than $500 of contributions in the year) cannot be carried forward. This is in contrast to the ability to carry-forward unused contribution room for the existing CESG.
The lifetime CESG limit of $7,200 remains unchanged, but this limit now encompasses both the Basic and Enhanced CESGs.
3. Alberta Centennial Education Savings (ACES)
The Government of Alberta introduced a one-time ACES grant of $500 to be paid to the RESP of every child born or adopted by Alberta residents on or after January 1, 2005. Subsequent grants of $100 are also available for any eligible resident children attending school who turned 8, 11 or 14 on or after January 1, 2005.
To be eligible to receive the subsequent grants, prior to applying for the grant, parents are required to invest at least $100 into an RESP. The application for the ACES grant must be submitted within 6 years following a child's birthday (i.e., between date of birth and the day of the sixth birthday). To apply for the subsequent grants, separate applications must be submitted within 6 years following the child's eighth, eleventh and fourteenth birthdays. Similar to the CLB, the child must be a beneficiary of either an Individual or Family Plan (where all beneficiaries are siblings) RESP in order to be eligible to receive the Alberta grant(s). In addition, a contribution of at least $100 must have been made to the RESP for the beneficiary, one year immediately prior to applying for each of the subsequent Alberta grants.
4. Quebec Education Savings Incentive (QESI)
The Quebec Education Savings Incentive, which went into effect on February 21, 2007, consists of a refundable tax credit that your RESP provider (who offers the QESI) applies for on your behalf. To be entitled to the QESI, the child beneficiary must be less than 18 years old, have a SIN, be a resident of Quebec on December 31 of the taxation year and be the designated beneficiary of the RESP.
Annual payments to an eligible RESP are based on 10% of the net contributions paid over the course of the year, up to a maximum of $250. In addition, as of 2008, any benefits accrued during previous years can be added to this basic amount, up to a maximum of $250. The tax credit will be granted on contributions made on or after February 21, 2007. Also, to assist low-income families, an additional increase of up to $50 per year may available.
It is important to note that under the QESI, a single beneficiary cannot be granted more than $3,600 for all RESPs of which the child is beneficiary.
A CIBC advisor can work with you to structure an effective education savings strategy by:
- Reviewing education savings options to help you save for your child's education
- Determining your qualifications to receive up to $2,000 additional savings with the Canada Learning Bond
- Structuring a savings arrangement to maximize government grants, such as CESG and Enhanced CESG
- Letting you know if your province offers additional education savings grants