Basic Canada Education Savings Grant

Disclaimer: RESP promoters

The information contained on this page is technical in nature and is intended for Registered Education Savings Plan (RESP) and Canada Education Savings Program promoters. For general information, visit the RESP section.

Objective

At the end of this module, you will be able to explain the different characteristics of the Basic Canada Education Savings Grant (Basic CESG).

1. Introduction

1.1 Prerequisites for this module

To complete this module, you must have completed the previous one on Registered Education Savings Plan.

Suggested reading:

Guide - Chapter 2-1, Basic CESG

1.2 Definition of CESG

The CESG is an education savings incentiveFootnote 1 administered by the Employment and Social Development Canada (ESDC).

The CESG is based on contributions made to Registered Education Savings Plans (RESPs) on behalf of eligible beneficiaries to help save for their post-secondary education.

1.3 Background

In 1998

In 2005

This module describes only Basic CESG. Additional CESG is explained in the next training module.

2. Eligibility Criteria

2.1 Beneficiary's Eligibility Criteria

  • Valid Social Insurance Number (SIN)Footnote 2 for the beneficiary
  • Registered planFootnote 3 and the beneficiary named by the subscriber
  • Beneficiary's Canadian residencyFootnote 4 when contribution is made
  • 16 and 17 year rule (see next page)
  • Age limit of 17 years: Contributions must be made before December 31st in the year the beneficiary turns 17.

2.2 16 and 17 Year Rule

To receive CESG at ages 16 and 17, one of the two following conditions must be met before the end of the calendar yearFootnote 5 where the beneficiary turns 15:

Condition 1Footnote 6:

  • Contributions during 4 years, and
  • at least $100 per year

or

Condition 2Footnote 7:

  • $2000 in contributions

2.3 Check Your Understanding

Scenario 1: Beneficiary's SIN

José Sanchez' parents opened an RESP for him. When they filled out the form to open the RESP, they made a mistake by inverting the month and the day of José's birth date. They made a contribution. When the promoter requested Basic CESG for this contribution, it was refused. Why?

Answer

The birth date on the RESP form does not match the date validated by Social Insurance Registration (SIR). It is the promoter's responsibility to correct this error and to resubmit the necessary transactions to the CESP.

Scenario 2: Beneficiary's Residency

In 2003, Juan Sanchez and his wife Nancy opened an RESP for their son José, who was born that same year. They contributed regularly every year. In 2007, the family moved to Costa Rica and came back to Quebec in 2010. While they were away in Costa Rica, from 2007 to 2010, can the parents continue to contribute to their son's RESP and receive Basic CESG?

Answer

No, for a beneficiary to receive CESG, he must be a Canadian resident when contributions are being made. Between 2007 and 2010, the beneficiary and his parents (subscribers) live in Costa Rica not in Canada. During this time, the subscribers cannot make contributions and the beneficiary cannot receive CESG.

Scenario 3: 16 and 17 Year Rule

Parents open an RESP in 2007 for their son Benjamin. They make a $300 contribution the year the plan was opened, and also in 2008, 2009 and 2010. In December 2009, Benjamin turned 15.

  • 2007 (age 13), $300 contribution
  • 2008 (age 14), $300 contribution
  • 2009 (age 15), $300 contribution
  • 2010 (age 16), $300 contribution

Is Benjamin eligible for CESG in 2010, when he turns 16?

Answer

No, Benjamin is not eligible for CESG in 2010, because the subscribers must have contributed a minimum of $100 in four separate years, or a minimum of $2,000 before the end of the calendar year where Benjamin turns 15. At the end of the calendar year where Benjamin turned 15 (2009), the subscribers had contributed for only three years, and had not contributed a total of $2,000. None of the conditions were met. The subscribers could have contributed at least $1,400 in 2009 to obtain the minimal total of $2,000 before the end of the calendar year where Benjamin turns 15.

3. Types of Plans for Basic CESG

3.1 Types of Plans for Basic CESG

Basic CESG can be paid into all plans except grandfathered plansFootnote 8.

To compare plan types:

Detailed information:

4. Application Forms

4.1 Application Forms Overview

Recommended Reading:

Guide - Appendix A explains how to complete forms.

4.2 Accessing Application Forms

You can accessFootnote 14 all components of the application form in PDF formatFootnote 16 from the ESDC Web site:

4.3 Key Players

Some players must signFootnote 17 the application forms:

Other players:

4.4 Sharing of Information

Incentives requested in application forms cannot be paid unless key playersFootnote 20 give their consent to use and shareFootnote 21 personal information.

Employment and Social Development Canada (ESDC) protectsFootnote 22 the confidentiality of this personal information.

4.5 Avoiding Typical Mistakes

The promoter is responsibleFootnote 23 for ensuring that application forms are completed properly and informing subscribers of eligibility criteria.

To avoid delays in Basic CESG payments:

  • All required information must be written clearly and accuratelyFootnote 24.
  • All required signatures and consent must be obtained

Useful checklist:

Guide - Chapter 2-1, The Basic CESG, 7.2 Post-Application Checklist

5. Application Process

5.1 Steps to Apply for Basic CESG

1. Open an RESP

Subscriber

  • Approaches an RESP promoter to sign an RESP contract for one or more beneficiaries, depending on the plan type selected.

Promoter

  • collects the SINs for the subscriber and the beneficiary; and
  • notifies the Custodial Parent or Legal Guardian within 90 days that an education savings plan has been opened for the beneficiary.

2. Application Form

The promoter:

  • reviews beneficiary eligibility criteria with the subscriber;
  • Selects and completes the appropriate CESG application form with the subscriber for each beneficiary;
  • incorporates data on the application form into the promoter system; and
  • retains completed application forms on file;

3. send contract information to CESP

The promoter submits the following information electronically to the Canada Education Savings Program (CESP) for validation:

  • contract information
  • subscriber information
  • beneficiary information

If this information passes CESP validation, the contract information is forwarded to CRA for registration. The CESP also sends Contract Registration reports to promoters every month.

4. CRA Registration

CRA will register only those contracts that meet all registration requirements. CRA will notify the promoter of the status of all contracts submitted.

5. Request CESG

Each time the subscriber makes an RESP contribution for a beneficiary, the promoter must send an electronic transaction to the CESP to request Basic CESG for the contribution.

6. Validate Eligibility

The CESP validates beneficiary eligibility for each electronic Basic CESG request sent by the promoter.

The CESP sends monthly reports to promoters to communicate the status of all transactions sent by the promoter. It is the promoters responsibility to review CESP reports, correct errors and resubmit transactions if required.

7. Pay CESG

At the end of each month, the CESP makes a single payment to each promoter by direct deposit.

It includes all education incentives paid for requests made in the previous month. The CESP also sends monthly processing reports to advise promoters of the Basic CESG amounts that must be deposited into beneficiary accounts.

For detailed information:

Guide - Chapter 2-1, Basic CESG 7.1 The Application Process - Basic CESG

6. Amounts

6.1 Calculating Basic CESG

Basic CESG is a 20% payment on qualifying contributionsFootnote 25 made to an RESP for an eligible beneficiaryFootnote 26.

Examples:

Contribution x 20% CESG
$2,500 x 20% $500
$1,000 x 20% $200
$500 x 20% $100
$100 x 20% $20

6.2 Annual Amounts Available

Each year, CESP makes an amount of Basic CESG available for each eligible child:

6.3 Assisted and Unassisted Contributions

Assisted Contribution to an RESP
Contribution that attracts CESG payment

Unassisted Contribution to an RESP
Contribution that does not attract CESG payment

Scenario: A subscriber opens an RESP for a child born in 2010. For the child's birth year, CESP makes $500 available in CESG and the subscriber contributes $5,000 that same year. Of the amount contributed, $2,500 attracts $500 in CESG (assisted contribution) and the rest of the contributed amount ($2,500) does not attract CESG (unassisted contribution).

6.4 Lifetime CESG Limit

The maximum CESG lifetime limit (Basic plus AdditionalFootnote 29) is fixed at $7,200 per beneficiary (not by RESP).

CESP checks contribution and CESG limits by using the beneficiary's SINFootnote 30.

7. Grant Room and Carry Forward

7.1 Grant Room

Grant room (by beneficiaryFootnote 31) is the balanceFootnote 32 of availableFootnote 33 Basic CESG that:

Unused amountsFootnote 37 are carried forwardFootnote 38 for future years.

7.2 Annual Limits

In a given year, Basic CESG payments can never be greaterFootnote 39 than the available grant room for a beneficiary.

For example...

A child born this year would have $500 in grant room at birth. Therefore, this child could not receive more than $500 in Basic CESG this year.

If this child had two RESPs, the combined amount of Basic CESG paid in both RESPs is still limited to $500.

Furthermore, Basic CESG payments cannot exceed the Basic CESG Annual Limit of $1000 per beneficiary (since 2007Footnote 40).

For example...

The grant room for a child is $1,500 when a subscriber (a wealthy relative) decides to make a $50,000 contribution (the lifetime RESP contribution limit) for this child.

The Basic CESG payment would be $1,000 due to the Basic CESG Annual Limit, even though the grant room was $1,500.

7.3 Example

Scenario: Jonathan was born in 2006 and has only one RESP. The only contributions for him in this RESP were $7,000 in 2008 and $4,000 in 2009. What would his grant room be on January 1, 2010.

Year Annual AmountFootnote 41 Grant RoomFootnote 42 ContributionFootnote 43 Basic CESGFootnote 44 Carry ForwardFootnote 45
2006 $400Footnote 46 $400Footnote 47 $0 $0 $400Footnote 48
2007 $500Footnote 49 $900Footnote 50 $0 $0 $900Footnote 51
2008 $500 $1,400Footnote 52 $7,000 $1,000Footnote 53 $400Footnote 54
2009 $500 $900Footnote 55 $4,000 $800Footnote 56 $100Footnote 57
2010 $500 $600Footnote 58      

7.4 Check Your Understanding

Find the grant room for the following scenarios:

Scenario 1:

Maxim was born in November 2005. In December of that year, his parents opened an RESP for him and began making $10 in monthly contributions until December 2007. What would his grant room be on January 1, 2008?

Check your work

On January 1, 2008, Maxime would have $1750 in grant room. See the steps taken below to determine this amount.

Year Annual Amount Grant Room Contribution Basic CESG Carry Forward
2005 $400 $400 $10 (Dec) $2 $398
2006 $400 $798 $120 $24 $774
2007 $500 $1274 $120 $24 $1250
2008 $500 $1750      

Scenario 2:

Same as scenario 1 except Maxim's grand parents opened another RESP and made a $5,000 contribution for Maxim in 2007. What would his grant room be on January 1, 2008?

Check your work

On January 1, 2008, Maxime would have $774 in grant room. See the steps taken below to determine this amount.

Year Annual Amount Grant Room Contribution Basic CESG Carry Forward
2005 $400 $400 $10 (Dec) $2 $398
2006 $400 $798 $120 $24 $774
2007 $500 $1274 $120 + $5000 $1000 $274
2008 $500 $774      

More examples:

Guide - Chapter 2-1, Basic CESG 6. Calculating Grant Room and Carry Forward

8. Receipt and Payment

8.1 Promoter's Responsibilities

The RESP promoter has many responsibilities when receiving a CESG payment:

  • Transmitting the transaction:

    Send the CESG request electronically to the CESP. Each request contains:

    • Contract information
    • Beneficiary and subscriber information
    • Amount of contribution made by the subscriber for the beneficiary
  • Necessary corrections:

    The CESP submits electronic reports to the promoter every month. In case of errors, the promoter must correct the transaction before resubmitting the right information to the CESP.

  • Administration of payment:

    At the end of each month, CESP pays a sum of money for beneficiaries by direct deposit in the promoter's bank account. The amount paid includes all incentive payments for all the promoter's eligible beneficiaries.

  • Distribution of monies:

    The promoter is responsible for distributing the incentive amounts to the appropriate accounts of each beneficiary.

  • Advising clients:

    The promoter is responsible for communicating to the subscriber in writing at least once a year the amounts of CESG and other incentives paid or withdrawn for the RESP beneficiary, including the cases where CESG and other incentives were not paid.

For more details:

Guide - Chapter 2-1, Basic CESG, 8. Receiving and Depositing the CESG

8.2 RESP Notional Accounts

Promoters are responsible for maintaining RESP notional accountsFootnote 59.

  • When they receive a direct depositFootnote 60 from the CESP, they must distributeFootnote 61 it into appropriate accounts.

Accounts Used for Educational Assistance Payments

The incentives and earnings in an RESP can be used by a beneficiary in an Educational Assistance Payment (EAPs) to pay for post-secondary education. These amounts are found in the following accounts:

  • Earnings: Interest and other accumulated income in an RESP from all RESP accounts.
  • CESG: CESG is comprised of two components: Basic CESG and Additional CESG. CESG payments are pooled into one CESG account for all beneficiaries in an RESP.
  • CLB (per beneficiary): As Canada Learning Bond (CLB) is an incentive that must be tracked for individual beneficiaries, promoters must have separate CLB accounts for each beneficiary in family plans. CLB is explained in a separate module.
  • Provincial Incentives: Provincial incentives are education savings incentives paid into RESPs by a designated provincial program, such as the Alberta Centennial Education Savings Plan Grants, the Saskatchewan Advantage Grant for Education Savings or the Quebec Education Savings Incentive.

Accounts Used for Subscriber's Property

All contributions remain the property of the subscriber. While the subscriber can give contributions to a beneficiary to pay for post-secondary education, these amounts are not included in Educational Assistance Payments (EAPs). The following accounts are used for the subscriber's property:

  • Assisted Contributions: An assisted contribution is an amount of money deposited into an RESP by a subscriber that attracts a CESG payment for a beneficiary.
  • Unassisted Contributions: An unassisted contribution is an amount of money deposited into an RESP by a subscriber that does not attract a CESG payment for a beneficiary.

8.3 Order of Payments

When a beneficiary is named in multiple RESPs, several subscribers could make contributions for the same beneficiary in the same reporting periodFootnote 62.

In these situations, a first come, first servedFootnote 63 approach is used for CESG payments.

For more details: Interface Transaction Standards (ITS), Transaction Type "11" – Contribution.

8.4 Non-Payment of Basic CESG

A non-payment occurs when a CESG request is rejectedFootnote 64 or refusedFootnote 65.

Guide - Details: Appendix E, Understanding Error Codes

Guide - Details: Appendix F, Understanding Refusal Reasons

8.5 Three Year Rule

To receive CESG, the promoter must:

For more details:

Guide - Chapter 2-1, Basic CESG, 8.4. Condition for Payment of the CESG – Three-Year Rule

9. Repayment

9.1 Repayment Process

Examples

The CESG is repayable if:

  • the registration of the RESP is revoked by CRA;
  • an ineligible beneficiary replacement occurs;
  • an accumulated income payment or payment to a designated educational institution is made;
  • an ineligible transfer occurs; and
  • the RESP is terminated.

If any of the above reasons occur, the trustee must repay the lesser of these amounts:

  • the fair market value of the RESP; or
  • the balance of the CESG account.

Recognize and Identify Reason

The promoter must recognize and identify the transactions and circumstances that will result in a CESG repayment.

Example:

Should a subscriber withdraw contributions without the beneficiary being enrolled in post-secondary education, an amount of CESG that was paid to the plan must be repaid to CESP.

Determine the amount

The promoter must determine the CESG amount to be repaid to CESP.

Example:

There is a predetermined formula to calculate the amount of CESG to be repaid should a subscriber withdraw contributions without the beneficiary being enrolled in post-secondary education.

Submit Transaction

Promoters send transactions electronically to the CESP every month.

To repay CESG, the promoter must submit a transaction to the CESP which indicates the amount and reason for repayment.

The CESP removes these repayment amounts from the total amount of incentives that would have otherwise been paid to each promoter for the reporting period.

For more details:

Guide - Chapter 2-1, The Basic CESG, 9.1 The Repayment Process

10. Quiz

This quiz will help you assess your understanding of the topics covered in this module.

Tip: You can print this page and circle the correct answers.

Question 1: Multiple Choice

Amongst the eligibility criteria below, which one is not a criterion in order to receive the Basic CESG?

  1. Beneficiary's residency
  2. Age of the beneficiary
  3. Subscriber's family income
  4. Valid SIN of the beneficiary
Answer

Subscriber's family income

Question 2: True or False

Basic CESG can be paid in all types of plans, including grandfathered plans (plan opened prior to 1998).

  1. True
  2. False
Answer

False. CESG cannot be paid in a grandfathered plan.

Question 3: Multiple Choice

The CESG lifetime limit for a beneficiary is:

  1. $7,500
  2. $1,000
  3. $7,200
  4. $50,000
Answer

$7,200. CESG lifetime limit is $7,200 per beneficiary.

Question 4: Yes or No

In 2007, Louis and his family moved to Canada. He opened a RESP for his 7 year old son. Between 2000 (birth) and 2007, has there been any accumulated grant room for Louis' son?

  1. Yes
  2. No
Answer

No. For Grant room to accumulate, the family must have Canadian residency status.

Question 5: Multiple Choice

Amongst the following statements, which ones will cause the non-payment of CESG?

  1. There is an error in the beneficiary's SIN
  2. The 16/17 rule is not satisfied
  3. A transaction is not successfully processed within 3 years
  4. The beneficiary has received the maximum annual amount of CESG
Answer

All answers are true

Question 6: Multiple Choice

Amongst the following responsibilities, check the ones applicable to the promoter:

  1. Submit transactions to CESP
  2. Register education savings plans
  3. Pay CESG into an RESP
  4. Assist the subscriber in filling CESG application
Answer

CRA registers RESPs. CESP pays CESG. Other are promoter's responsabilities

Question 7: Multiple Choice

Who is responsible for correcting errors that have caused a transaction to be rejected?

  1. The promoter
  2. The custodial parent
  3. The subscriber
  4. The CESP
Answer

The promoter

Question 8: Multiple Choice

If the beneficiary is not eligible for an Educational Assistance Payment (EAP), can a subscriber withdraw contributions from a RESP without being penalized?

  1. Yes
  2. No
Answer

No. The promoter will need to calculate the CESG amount to repay by using a formula.

11. Conclusion

Next Module: Additonnal CESG

Thank you for completing the Basic Canada Education Savings Grant module

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