Are you worried about saving for your child’s post-secondary education? Trust me, you are not alone. Raising a child in Canada is not cheap, but government Registered Education Savings Plan (RESP) grants like the Canada Education Savings Grant (CESG) can be a huge help when it comes to saving for education. Here’s what you need to know about CESG, how it works, who qualifies, how to apply, and other options for RESP grants to better help you save for your child’s future.
How does the Canada Education Savings Grant work?
The Canada Education Savings Grant is a government grant that contributes to a child’s RESP to help families save for post-secondary education. The program is run by Employment Social Development Canada and is an incentive program. Essentially, when a parent, family member or friend makes a contribution to a child’s RESP then the government will make a contribution as well.
The money in the RESP can then be used for full or part-time studies in a post-secondary educational institution. This includes college, university, trade school, CEGEPs, and apprenticeship programs. If the child does not pursue post-secondary education, then the CESG money is returned to the government. (To learn what happens to unused RESP read this article.)
It’s also worth pointing out that this money is not tax-free. You will have to pay tax on the CESG upon withdrawal. However, since it will be a student withdrawing the money, chances are there will be no tax owed or the amount will be very little.
Canada Education Savings Grant eligibility
The great thing about the Canada Education Savings Grant is that everyone qualifies for it. Income level doesn’t matter. Now, there are two types of CESG based on income level, which I will touch on here in a second, but in general, your income does not play a part in qualifying for this grant. The CESG is for everyone.
To qualify for CESG the child must meet three requirements.
- He/she must be a Canadian resident
- He/she must have a valid social insurance number (SIN)
- He/she must be named as the beneficiary in an RESP
Then, of course, family and/or friends will need to make contributions to the RESP in order to receive the CESG.
Since CESG is meant for long-term savings there are a couple of additional rules for children aged 16-17. In order for this age group to qualify for the grant, you need to meet these two requirements.
- There must be a minimum of $2,000 contributed to (and not withdrawn from) the RESP prior to the end of the calendar year in which the child turns 15.
- A minimum annual contribution of $100 must be made (and not withdrawn from) the RESP in any of the four previous years.
How much can I get from the Canada Education Savings Grant?
As I mentioned above, all income levels qualify for CESG but there are two types. Basic CESG for everyone and additional CESG for those who have a lower income.
With basic CESG, you will get 20% of the annual RESP contributions up to $500 per year*. With the additional CESG, an extra 10-20% will be added on, depending on income level. That means if you contribute $2,500 each year, you’ll get the maximum $500 grant. Lower income families get the additional 10-20% based on the first $500 contributed.
The maximum lifetime amount of CESG a child can earn (for both basic and additional) is $7,200. Basically, if you contribute every year from when your child is born, you’ll max out the grant in 14 years.
*Note that you can carry over the unused room if you are unable to max out the annual contributions. In this case, the maximum annual CESG you can earn would be $1,000.
How do I apply for the Canada Education Savings Grant?
Applying for the CESG is very easy and pretty straightforward. When setting up an RESP, all the documentation for the CESG is filled up at the same time. Beyond the SIN and all the standard information on the child, there’s nothing else to add. Note that if you are not the primary caregiver or spouse/ co-habiting common-law partner of the primary caregiver, there will be a second form that needs to be filled out by that individual as well. It’s called the Annex B form and can be found online here.
Once the CESG form is filled out, it’s tied to the RESP. That means whenever you make a contribution to the RESP, the CESG will automatically be paid out. CESG deposits usually take 4-6 weeks after the contribution is made to appear in the RESP account. The frequency of the CESG deposits depends on your contribution schedule. So, for example, it could be annually or monthly depending on how often you contribute to the RESP.
Technically speaking, the grant is paid out in cash, but some financial institutions will automatically it invest it for you if you’ve authorized them to do so. If you’re managing the RESP on your own, then you’ll need to purchase securities on your own when the CESG shows up.
One of the best places to set up an RESP is Justwealth. They’re one of Canada’s best robo advisors and have target date portfolios that are ideal for RESPs. You basically choose the year your child will start their post secondary education, and Justwealth will invest on your behalf. The portfolio is automatically rebalanced, so there’s nothing to do on your end but to make regular contributions.
Other RESP Grants
The Canada Education Savings Grant is a great incentive to get family and friends to save early for their child’s education. However, it also assumes that these individuals are in a place where they can financially afford to do so, which is not always the case. If you are unable to contribute to a child’s RESP on your own, then consider the Canada Learning Bond (CLB).
What is the CLB?
The CLB is a government program dedicated to helping those from low-income families. The government adds money to a child’s RESP without the requirement that friends/family contribute as well.
Eligibility is based on the adjustment income of the primary caregiver & partner (if applicable) as well as the number of qualified children in the family. Each child is eligible for a maximum of $2,000 CLB; $500 for the first year of eligibility and $100 each year that the child continues to be eligible (up to age 15).
To apply for CLB, open an RESP with a recognized RESP promoter. They will have the application forms and be able to help you with the process. Note that you do not need to have a bank account to open an RESP and you do not need to make personal contributions to the RESP in order to qualify for CLB.
Education is important but it’s definitely not cheap and, unfortunately for us parents, it just seems to be getting even more expensive. Opening an RESP for your child is the best way to save for your child’s education and the CESG is essentially free money. For more tips on how to save for your child’s education, read this article.