RESP stands for Registered Education Savings Plan. Before diving in, let us understand that what is RESP.

What is Registered Education Savings Plan or RESP?

A RESP or Registered Education Savings Plan is one of kind contracts which is formed between a person or organization and an individual. The individual here is the subscriber or the person who is acting on behalf of the subscriber and the person or organization, and they are the promoter. In this contract, the promoter agrees to pay EAPs to the beneficiaries.

There are usually three parties involved in the working of RESPs. The three parties are as follows:

  1. The subscriber or the person acting for the subscriber
  2. The promoter
  3. The beneficiaries
  4. The subscriber or the person who acts on behalf of the subscriber is responsible for making contributions to the RESP. subscribers do not deduct their own contributions from their own income on their benefit return or income tax return.
  5. The promoter usually pays the contributions along with the income on the same contributions. The income which is earned on these contributions is called as EAP or Educational Assistance Payment.
  6. The beneficiaries generally receive the EAPs and the contributions from the promoters. They are obliged to include the EAPs in the income they earn for the year in which they have received them. However, the beneficiaries do not have to include the contributions which have been earned by them in their income.

Below is an overview on how a RESP works.

Overview of how a RESP works

  • The subscriber or the person acting on behalf of the subscriber enters into the plan along with the promoter and the mentions the name of one or more than one beneficiary under the same plan.
  • The subscriber further makes contributions to the plan aligned. If there are any government grants applicable, those grans are then aid to the plan. These grants can be any one which have been allowed by the government of the country of Canada. Some of them can be the CESG or Canada Education Savings Grant, the CLB or Canada Learning Bond, or any other third-party provincial education savings programs.
  • Next step involves, the promoter of the plan administers all of their amount which they have paid into the plan. as long as the income is keep involved in the RESP, it does not become taxable.
  • The promoter also works to make sure that the payments from the plan are made keeping in mind the terms of the plan and are made according to the conditions of RESP.
  • The promoter can turn to return the contributions of he subscriber or the person acting on the behalf of the subscriber to make the income or contributions or income from the contributions free from tax.
  • The promoter can allow to make payments to the beneficiary to aid his finance for his or her secondary education.
  • The promoter can also make accumulated income payments for the same purpose.