Canadian Resident And Non-Resident RESP Eligibility Rules – Updated 2014

by Mike Holman

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I often get asked about the Canadian residency rules for RESP accounts.  The rules are not that simple and in fact, make up one chapter in my RESP book which I’m reprinting below.

RESP Book

Buy The RESP Book on Amazon

RESP accounts have benefits and risks.  The benefits are the generous RESP contribution grants along with tax-sheltering.  The risks are extra taxes and penalties if the child does not use the RESP money.  Yes, there are ways to reduce RESP withdrawal penalties, but the fact is that there is likely still a penalty to be paid.

In my opinion, the benefits of the RESP outweigh the risks under normal circumstances.  However, if your situation changes so that the odds of your child going to school are lessened, then you should consider not starting an RESP account or cease contributing to an existing one.  You might be better just saving the money in a TFSA or open account where there are no consequences if the child doesn’t go to school.

One factor that could impact the usage of the RESP is Canadian residency.  Bottom line is that the beneficiary must be a Canadian resident to receive the RESP grant.  If the beneficiary is not a Canadian resident, they can still use the RESP for their education, but the the RESP grants will be returned to the government.   If you are living in Canada and think you probably won’t stay in the country, you might want to avoid RESPs.  It’s important to note that RESP money can be used if the child goes to school outside of Canada, as long as they maintain their Canadian residency.

You have time

You don’t have to commit to an RESP the day your child is born.  In fact you can start an account as late as the year the child turns 15 and still get a decent of amount of RESP grants.  If you have a child and you aren’t sure about where you will be living in a few years, hold off on the RESP until you are more certain.

  • If you start an RESP in the year when the child turns 10, you can still get the maximum $7,200 RESP grants.
  • If you wait until the year the child is 15 to start the RESP account, you can still get $3,000 of RESP grants.

Here is a link to the government’s definition for Canadian residency.

Here is a reprint of the shortest chapter of my book:

The Canadian residency rules for RESPs can be confusing because there are at least two parties involved with an RESP account — the subscriber and one or more beneficiaries.

The residency of the beneficiary is important because it determines if an RESP account can be opened and if it is eligible for contributions and RESP grants. The residency of the subscriber does not impact grants eligibility.

Residency of the subscriber

The person opening the account does not have to be a Canadian resident, but they have to have a valid Social Insurance Number (SIN). A non-resident subscriber can open an RESP account, make contributions, receive grants and initiate withdrawals.  Note – although a non-resident with a SIN can legally open an RESP account, they might find that most financial institutions won’t allow it.

The tax-sheltered status of the RESP only applies to Canadian residents. If the subscriber or account owner is a non-resident, they might have to pay taxes on any income earned in the RESP account as well as capital gains, according to the rules of their resident country.

Residency of the beneficiary or child

The beneficiary of an RESP account must be a Canadian resident with a valid SIN in order to:

  • Open an RESP account
  • Make contributions to the account
  • Receive RESP grants in the account

If the beneficiary of an RESP account becomes a non-resident, the account can be kept intact, but no contributions can be made and grants are not paid. If the beneficiary moves back to Canada and re-establishes Canadian residency, contributions can again be made and grants will be paid on contributions. No grant room will be accumulated for the time during which the beneficiary was a non-resident.

If the beneficiary has moved away from Canada and it is likely the beneficiary will be returning to Canada, it makes sense to keep the RESP account in place. If the beneficiary is not coming back to Canada, collapsing the account should be considered.

The beneficiary does not have to be a Canadian resident to use the RESP money for post-secondary education, however a non-resident will lose the grant amount of their RESP.

RESP money can be used to attend either a Canadian post-secondary school or a non-Canadian school.

Summary

  • The subscriber does not have to be a Canadian resident in order for RESP grants to be paid to the RESP account.
  • The subscriber must have a valid SIN to open an RESP account.
  • The beneficiary must be a Canadian resident in order for RESP grants to be paid into the RESP account.
  • If the beneficiary is not a Canadian resident, an existing RESP account can be maintained – but no contributions can be made.
  • The tax-sheltered status of the RESP does not apply if the subscriber is a non-resident. Local tax rules will apply.
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Want to learn more about RESPs? Buy The Book:

Resp-Book

The RESP Book: The Simple Guide to Registered Education Savings Plans

Everything you need to know about RESPs.

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Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

{ 10 comments… read them below or add one }

1 ted white

Your statement that a legitimate beneficiary who becomes a non resident cannot collect from RESP to pursue continued college or university studies abroad. CAll RESP (Government) (A) 1-800-267-3100 and for Tax ramifications call CRA (Tax) at (B) 1-800-267-6999.
The regulators at (A) confirm your statement is incorrect.
Please confirm.

2 Mike Holman

Thanks for the comment Ted.

I just did a quick check of the RESP promoter guide and it appears that the CESG (grant) has to be paid back if the beneficiary is a non-resident at the time of an EAP (payment for post-secondary education).

I’m going to call tomorrow and see if the EAP is otherwise paid out to the student without penalty. If that is the case, then the penalty of being a non-res is not as severe as I thought.

One thing which I will clarify in the post, is that the contributions can always be removed from the RESP regardless of residency.

http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/Guide_E.pdf

The RESP promoter guide has the following:

In addition to the withdrawal of assisted contributions there are a number of
other reasons (transactions) that will require the repayment of the CESG.
These other reasons include:

- An Educational Assistance Payment (EAP) is made to an individual who
is not a beneficiary under the RESP or to a beneficiary who is not a
Canadian resident.

As you can see, if the beneficiary is a non-resident, they have to give the RESP grants back.

http://www.hrsdc.gc.ca/eng/learning/education_savings/promoter/respinfosession_regulationse.shtml

says:

Beneficiaries have to be resident in Canada to get CESG or CLB in an EAP (educational assistance payment)

3 salas

I am a Canadian citizen living abroad (Mexico).
I am a non resident of Canada for tax purposes.
I have saved some money (about 50,000CDN)
for my Canadian-born son education.
This amount was already taxed in mexico.
I do not want to keep the money in mexico since this country
have had plenty of financial problems in the past.
So, I am looking for a convenient investment choice in Canada.
Is RESP a convenient choice?
My son is a non resident of Canada and
is planning to attend to a Canadian university.
Any comment/idea will be very much appreciated.

4 Shauna

Hi, thanks for the info above. I was hoping to get my son an RESP – he’s a Canadian citizen but a non-resident – it looks like that may be out of the question.

I have the same question as Salas, what can I do then to help save for my son’s future in Canada? Anything for non-residents?

Thanks

5 Mike Holman

@Shauna – I don’t think there are any accounts available for non-residents. If you are a Canadian resident, then you should consider saving in a TFSA or non-registered account. Even an RRSP could be an option in some cases.

6 Alvin Williams

I am told by my RESP company that because my child is going to a college in the USA that is not on their list of schools they cannot give me the money that I saved for their education. How come this company never told me this rule before I signed up? How am I to pay for my child’s education? This is a huge problem.

7 Matt

Hi,
Just wondering if RESP savings can be used for residence/housing if the child has father and mother living in the same city with plenty of room plus add. properties in town with student rentals?
Thanks
Matt

8 Marco

What about members of the Canadian Military, Government workers and other “Deemed Residents” of Canada for Tax purposes ?
Specifically, can their deemed resident children (beneficiaries) living with them abroad still collect the grant money on contributions made?

9 Janet Cha

Hello,
Canadian citizen Father is relocating to Canada from US. The kids were born and raised in US, and wants to follow father to Canada for college.
What are options, including application to in residency tuition for this type of situation. Would the child become natural citizen by birth and be applied as resident, or what are the particulars for in resident status for lower college tuition?

10 Paul

Hello,
Parents are Canadian citizens who reestablished Cdn residency in June 2011. Three kids, each of whom was born in the U.S. and established Cdn residency in June 2011. Joint RESP account was opened in 2012 with $7500 contribution and $1500 grant.

If the parents make a contribution for 2011, will the government provide the grant for that year (the year in which residency was established)? The full amount of the grant or only on a pro-rata basis?

Thanks.

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