The Canada Education Savings Plan: A Few Answers

The Education Savings Plan is a savings incentive program aimed at financing the postsecondary education of a child under the age of 21. According to the Canada Revenue Agency, over two million children have taken advantage of the Canada Education Savings Grant!

First, the benefits of such a plan start with the setting up of an education plan for our children. Secondly, the government of Canada helps us, thanks to the Canada Education Savings Grant and the Canada Learning Bond. Lastly, the revenues accumulated in the plan and the governmental help will be taxed only once the child proceeds with his postsecondary education.

Types of Plans and Admissible Ceilings

A plan with multiple beneficiaries must foresee a family tie with the subscriber. For example, Maxime and his sister can be the beneficiaries of a plan initiated by their parents or grandparents. As for the single beneficiary plan, it is not necessary for the subscriber to be related by blood or adoption. In both cases, the plan reaches maturity 25 years after its inception.

One can contribute up to $4,000 per year per beneficiary. However, there is a cumulative ceiling of $42,000 per beneficiary.

The Canada Education Savings Grant

The grant amounts to 20% of the annual contribution made to the plan. The grant is limited to $400 per year and is paid to the plan.

Every child aged 17 years old or less can receive a grant as long as he is the named beneficiary, that he has a social insurance number, he must be a Canadian resident and there must be a contribution made to the plan.

Admissible Education Programs

The funds in the plan must serve to pay for the costs of an education program offered by a vocational school, cegep, university or certain educational establishments situated abroad. The costs may include school fees, school supplies, lodging and transport.

The Child Continues His Studies

The contributions remain the property of the parent. They are not taxable at the time of withdrawal and can be paid to either the parent or the child.

The revenues generated from the contributions and the grants are given to the child if he is registered in an admissible postsecondary education program. These payments are taxable in the name of the child.

The Child Does Not Continue His Studies

The money can be used for a sibling (brother or sister) who will continue his postsecondary education.

The contributions are returned to the subscriber and are not taxable at the time of the withdrawal. The grant is returned to the government.

Revenues generated by the contributions can be used to fill the room available in the annual contribution of the subscriber’s RRSP, up to a maximum amount of $50,000, as long as the plan has been in force for at least ten years. Otherwise, the revenues will be taxed as additional income.

Final Word

On a final note, it is necessary to remember that the contributions are not tax deductible, but they allow generating revenues shielded from taxation.

If the plan is started late, the grant is not completely lost. Each child accumulates grant contribution room that may be recuperated by planning upcoming contributions. 

Personally, I have two children. They are swamped with gifts on birthdays and other occasions, which all end up sooner or later in the closet. I believe in steering some of this into a CESP, in hope that one day I'll hear: "Dad, I registered in the Art Studies Program." 

Stéphan Morin, CA
March 2005

Stéphan Morin is a Chartered Accountant and an investment adviser. He specializes in the management of financial assets and focuses on investment strategies to increase the return in a safe manner.