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CESG: Everything to Know About a Canada Education Savings Grant

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As of 2021, the average tuition cost of universities in Canada is $19,948 per year, including tuition, food, housing, and other expenses in 2018 according to Mcleans article. For that reason, the Canadian government has made a point of encouraging parents to start saving for their child’s post-secondary education as early as possible.

The Canadian government created a program called Canada Education Savings Grant, otherwise known as CESG, to help parents and grandparents save for their children’s education. But, what exactly is CESG, and how does it work?

What is An Education Savings Grant (CESG)?

The Canada Education Savings Grant (CESG) is an incentive program by the government of Canada to encourage people to save for children’s post-secondary education.

This grant is the government’s attempt at lightening this burden by putting a certain amount of money into your child’s college fund, with certain restrictions and eligibility requirements of course.

In essence, CESG Canada adds a 20% contribution to the first $2500 made into a child’s Registered Education Savings Plan (RESP) up to a maximum of $500 per year. The child must therefore have an active RESP to qualify for the grant.

Upon admission to a university, college, or trade school (both full-time and part-time), the child can withdraw their RESP and CESG contributions for all school-related expenses – not just the tuition. Check your registered education savings plan rules to see how much the child can withdraw at any given time.

Here are the top three questions you need to ask before you open an RESP

  1. Does my child have to pick a university or program that is approved by the government of Canada to use their RESP?
  2. What happens to my child’s RESP savings when they are 18 choose an education program or university not on the government-approved list to not go to university?
  3. Do we need to pay taxes and a 20% penalty on the growth of the account if the account has to be closed because they chose a program not on the government-approved list or not to go to university at all? 

There are certain restrictions and guidelines that come with opening a registered education savings plan that many parents do not know about. It’s important to understand your saving options to know if it is a good fit for your child. Especially when it is difficult to predict what college they might want to go to in the future or if they even want to end up going to college at all. 

Don’t worry though, we have another option for a saving plan that doesn’t have restrictions and removes the stresses of worrying about your child’s future. Child Plan is a participating whole life plan that is the only tax free savings plan parents and grandparents can open for children and grandchildren to be used for any financial need in life. 

Finally, a child savings plan that doesn’t have to be used only for your child’s education. Child Plan will allow them more financial freedom to use the cash for any education they choose and any aspirations they may have in life. A flexible savings plan that can offer your child a secure lifestyle they choose to live without limitations. 

Make your child’s dreams come true. Request a Child Plan illustration now and see how much cash value your child could have if you started making personal contributions before they turned 18.

CESG Eligibility

To qualify for the Canada Education Savings Grant, a child must:

  • Be a Canadian resident under 15 years.
  • Have a social insurance number.
  • Must have an active RESP account where a contributor saved money before the child turned 15 years old.
  • Must make a request to the government for the grant.

Because the Canadian Education Savings Grant (CESG) is meant to be a long term savings plan, any applicant who has applied when they are over 15 years must meet certain requirements to qualify for the grant:

  • They must have an RESP that was opened and has a contribution of at least $2000 before December 31 of the year the sole beneficiary turned 15 years, with no money withdrawn.
  • Alternatively, they should have an RESP that was opened and has at least an annual contribution of $100 over a four-year period before December 31 of the year that child turned 15 years old. Again, the money should have been saved without any withdrawals.

The above chart gives you a general overview of how the Canada Education Savings Grant is calculated depending on the adjusted income. 

Additional CESG

The government of Canada, through CESG, adds 20 cents for every dollar you have contributed in the RESP, up to $500 per year. However, they can top up your contribution by an extra 10-20%, depending on your income.

As of 2017, if your net family income is:

  •  $45,916 or less, you can receive $100 extra (20%) in grant money on the first $500 you contribute to RESP.
  • Between $45,916 and $91,831, you receive $50 (10%) extra on the first $500 you contribute to RESP.

This additional CESG ensures that low-income earners in Canada can also afford to pursue post secondary education. All other eligibility rules apply.

CESG Carry Forward

If you have not contributed the qualifying amount ($2500) in any given year, you can still catch up on contributions in future years and get the grant. You can receive a maximum of $1000 in any given year.

For example, if you did not contribute anything to your child’s RESP in 2020, the $500 CESG can be carried forward to the next year if you compensate for the missed contribution. This means a contribution of $5000 in 2021 will attract $1000 to cover the two years. 

How Often Do You Receive CESG?

CESG checks into your child’s RESP after you make your contribution. So if you contribute once a year, you will receive one CESG payment that year.

People who make RESP contributions monthly or quarterly also receive their CESG contributions with that timing. That said, you should check your RESP about the terms related to contribution timing.

On the other hand, the Child Plan is simpler. You can open a Child Plan™ “Participating” Whole Life insurance plan for your kid as early as 14 days after birth. There is no minimum or maximum amount. Your investment depends on your family budget. Because Child Plan™ is a Whole Life insurance plan, your kid will be permanently covered. It’s also important to note that Child Plan™ is permanently funded after 20 years, so no further deposits will ever be required.

Request a Child Plan illustration today and see how much cash value your child will have for their education and for life.

Is CESG Taxable Income?

Yes. A basic CESG is considered taxable income when the student withdraws the amount for use. However, since most students have an income below the taxable amount, they most likely won’t get taxed. The interest earned by that contribution over the years is, however, not taxable.

If your child has a day job that pays above the taxable amount, the CESG will be added to that value as taxable income. Be sure to discuss this with your child when they join college so they can understand the tax obligation that may or may not apply to them.

What Happens to the CESG if the Child Doesn’t Join College?

If the child doesn’t use the RESP amount contributed on their behalf, the contributor is free to withdraw the money or move it to another investment or retirement savings plan. However, the unused CESG amount goes back to the government so it can benefit another child in need.

CESG is meant to lighten the parent’s burden of college expenditure, so it cannot be used if the child doesn’t go to college. Like RESP, you can also transfer CESG to another beneficiary, within reason. The other child will have to meet certain criteria to qualify for a transfer.

Do you have to Pay Back CESG?

No. The Canada Education Savings Grant is a gift from the government of Canada to its young population and not an education loan. It’s a way to encourage them to pursue higher education and develop themselves mentally.

As a beneficiary of the grant, you are not required to pay the amount back once you get employed. This is the main difference between CESG and government-sponsored education loans.

Summary

As a parent in Canada, options for saving for your children have been very limited. The government created these grants for everyone to save a little amount every year for that worthy course but with complicated and strict guidelines.

The better news is there is a new option today. Now Canadian parents and grandparents have the option to open a Child Plan that gives their child or grandchild the freedom to invest in more than just their education. 

Our Child Plan gives you the flexibility of being able to use the money you save on any life expenses. Cash values can be used by your child for any financial need in their lifetime including education, down payment on a home, starting a business, and even to provide financial security for their future family.

We can all agree that life has been occurring in so many unexpected ways today – so it’s important to have a savings plan for your child or grandchild that allows them to have the option to be prepared for any situation, not just for their education.  

Being given the flexibility as a parental figure to invest in all aspects of your child or grandchild’s future helps relieve the stresses of securement on their journey ahead and gives more time to enjoy the present moment with them. 

Request for a Child Plan illustration, and get a customized saving plan for your kid to help secure them a brighter future.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

Personalize Your Child Plan™

Request a Child Plan™ Illustration and see how much cash value your child will have for their education and for life.

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*illustrations are reflective of the annual premium amount

Have a question about Child Plan or wish to speak with a Family Advisor?