RESP — save for a child's post-secondary education
Registered Education Savings Plans
Section 146.1 establishes the rules for Registered Education Savings Plans (RESPs), allowing parents and grandparents to save for a child's post-secondary education with tax-deferred growth and access to government grants.
Plain-language explanation
Section 146.1 governs Registered Education Savings Plans (RESPs). RESPs allow subscribers (typically parents or grandparents) to save for a beneficiary's (typically a child's) post-secondary education with significant tax advantages.
Contribution rules: Contributions to an RESP are not tax-deductible, but investment income and capital gains grow tax-free inside the plan. The lifetime contribution limit per beneficiary is $50,000. There is no annual contribution limit, but contributions over $2,500/year do not earn the Canada Education Savings Grant (CESG).
Government grants: The federal CESG matches 20% of annual contributions up to $2,500, providing up to $500/year in free money (lifetime CESG limit: $7,200). Low-income families receive additional CESG (10–20% extra on the first $500). The Canada Learning Bond (CLB) provides additional RESP grants to low-income families.
Tax treatment of withdrawals: When the beneficiary goes to post-secondary school and withdraws Educational Assistance Payments (EAPs), the income portion (growth and grants) is taxable in the beneficiary's hands — not the subscriber's. Since students typically have low incomes, the tax is usually minimal or zero.
If the plan collapses: If no beneficiary attends post-secondary school, contributions are returned tax-free to the subscriber. Investment income inside the plan is taxed plus a 20% penalty (to recover the tax deferral benefit), unless transferred to the subscriber's RRSP.
Example
Parents contribute $2,500/year to their daughter's RESP starting at birth. Each year, CESG adds $500. Over 18 years: $45,000 in contributions + $9,000 in grants + investment growth. When their daughter attends university, she withdraws EAPs taxed in her hands — likely at 0% to 15% tax, far less than her parents' marginal rate.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Lifetime contribution limit for RESP remains $50,000. Budget 2023 increased the student withdrawal limit for first 13 weeks from $5,000 to $8,000 (full-time) and $2,500 to $4,000 (part-time).
Common questions
What happens to RESP money if my child does not go to university? +
Contributions are returned to you tax-free. Government grants (CESG, CLB) must be repaid. Investment earnings inside the plan are taxed in your hands plus a 20% additional tax penalty. Alternatively, you can transfer up to $50,000 of the accumulated income to your RRSP (if you have room) under the Accumulated Income Payment (AIP) rules.
Can I name multiple children as RESP beneficiaries? +
Yes, with a "family RESP" you can name multiple children as beneficiaries. Contributions earn CESG for each beneficiary separately. If one child does not attend post-secondary school, their share can be redirected to a sibling beneficiary.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 146.1. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.