The RESP can be invested in government and corporate bonds, GICS and stocks and in mutual funds.

The RESP contributions are supplemented by the Canada Savings Education Grant, which is a federal program that deposits up to $500.00 per year directly into the RESP.

Although the RESP contributions are not tax deductible the tax payable on the RESP is minimized because when the accumulated income and Canada Savings Education Grants are withdrawn from the RESP to pay for education expenses, it is the student who pays the taxes, not the RESP contributor.

All of the money withdrawn from the RESP is taxed in the student’s hands as ordinary income and, as such, attracts little or no tax because of the student’s basic personal exemptions and tuition/education tax credits.

Although there is no minimum annual contribution requirement, the lifetime contribution limit per beneficiary of the RESP is $50,000.00. A child can be a beneficiary of more than one RESP, but that child is still limited to a maximum contribution limit of $50,000.00.

The Canadian Education Savings Grant pays a grant of 20% of the first $2,500.00 of annual contributions directly into the RESP. There is a lifetime limit of $7,200.00 of Canadian Education Savings Grant money that a student may receive through an RESP.

In the event that a student does not pursue post secondary education, the contributions made to the RESP are returned to the payor, with no tax consequences and the Canadian Education Savings Grants are returned to the federal government.

The payments from an RESP toward post secondary education is called an education assistance payment ( EAP). The EAP comprises the RESP contributions, the Canadian Education Savings Grants and the income that those funds have generated. The institution to which EAPs are paid must qualify as an education program. Universities, Community Colleges, Jr. Colleges or specialized training schools qualify as education programs.

The payment of an EAP requires that the RESP administrator be provided with written instructions requesting that the EAP be made to the student, along with proof of the student’s enrolment at a qualifying educational institution.

An RESP matures or terminates on the earlier of all of the funds having been withdrawn or at the end of the 35th year from the date the RESP was commenced.

There are two types of RESPS,  a single beneficiary plan where there is only one potential student and a family plan, where there is more than one potential student within a family.

In a family RESP the RESP EAP does not need to be paid out in proportionate shares between the potential students. If one child does not elect to attend post secondary education, the other potential student or students may use the EAP for their education.

RESP Separation Issues

Because child support obligations are to meet current expenditures relating to children, the Courts have, in general, refused to impose an obligation on the payor spouse to contribute towards an RESP.

The Courts have, however, held that the total contributions made to an RESP during the marriage, regardless of which parent made the contributions and in what amount, will be made available for post secondary expenses.

Any shortfall in the payment of post secondary expenditures will be paid by the parents proportionate to their income.

RESP contributions made by a parent after separation are generally credited to the parent who made them.