Conservative Leader Andrew Scheer said Tuesday a government led by him would contribute more money to Registered Education Savings Plans (RESPs) — a spending commitment that would help parents save more for their child’s post-secondary education.
Scheer has been on an announcement blitz during the first seven days of this federal election campaign, promising a $6 billion tax cut and a host of new or revived tax credits he says will make life more affordable for Canadians.
Under the Conservative plan, the government’s contribution to RESPs would rise from 20 per cent to 30 per cent for every dollar invested up to $2,500 a year.
That means about $750 in free money every year for a parent who contributes the maximum.
Those funds, known as Canada Education Savings Grants (CESG), are paid directly into an RESP account; parents can invest those funds as they see fit. Under the Conservative proposal, the lifetime maximum CESG amount also would increase from $7,200 to $12,000.
“For most parents, sending their kids to college, university or trade school is the culmination of years of scrimping and saving,” Scheer said. “By boosting the RESP, a new Conservative government will put more money in the pockets of parents working hard to help their children get ahead. A more educated Canada is a better, stronger, more prosperous Canada.”
According to the party’s figures, a couple that contributes $25 a month to an RESP after a child’s birth would stand to receive $1,620 in federal grants by the time the child turns 18.
A couple that contributes double that amount ($50 a month) would receive $3,240 in government grants by age 18, the party said — roughly $1,080 more than what they receive currently.
The Conservative policy to sweeten Ottawa’s contributions to RESPs would launch in January 2022. The Parliamentary Budget Office (PBO) says the program would cost the federal treasury about $600 million a year in lost revenue.
Like the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP), an RESP allows a parent to make investments — in financial instruments like stocks, bonds, mutual funds or Guaranteed Income Certificates (GICs) — that can grow tax-free.
The money a parent contributes to an RESP can be withdrawn tax-free when a child has graduated high school and is enrolled in a recognized post-secondary institution.
However, the portion of the RESP that came from government grants, along with any capital gains earned on those investments, are withdrawn as Educational Assistance Payments (EAPs) and are taxable as income.
But it’s the student who claims those payments as income — and because most post-secondary students pay little in taxes because of tuition tax credits, the amount owing is usually negligible.
If the child doesn’t go to school, all grant money is lost and must be returned to the federal government.
A perk for wealthier families?
In 2017, $3.8 billion was withdrawn from RESPs to cover the costs of education for over 431,000 students, according to government figures.
In response to the Conservative policy, the Liberal war room pointed to research prepared by Statistics Canada that suggests the program disproportionately benefits wealthier families.
The 2017 study found that, among families with children under the age of 18, RESP holding rates and average dollar amounts were higher for those in higher income quintiles.
“The gap in RESP holdings between families at the top and bottom of the income distribution was largely attributable to higher wealth and (to a lesser extent) higher levels of parental education among families at the top of the distribution,” the study found.
“A lower level of awareness of RESPs among families in the bottom income quintile may have also been a factor.”