The RESP explained

The mechanism

An RESP is opened for the benefit of a person — the beneficiary, usually a child — by a subscriber, usually a parent or grandparent. Three treatments to know:

• At contribution: unlike an RRSP, contributions are not deductible from income. You put in money that has already been taxed.
• While invested: the gains — interest, dividends, capital growth — are tax-sheltered, as in other registered accounts.
• At withdrawal: the treatment depends on what comes out — the most important mechanic of the plan, detailed below.

The grants: the CESG (and Quebec's QESI)

This is what distinguishes the RESP from everything else:

• The CESG (Canada Education Savings Grant) is paid by the federal government in proportion to each year's contributions, up to annual and lifetime maximums. Additional amounts generally exist for lower-income families.
• Quebec residents may also receive the QESI (Quebec Education Savings Incentive), which follows the same logic provincially — an amount proportional to contributions, paid directly into the plan, with its own maximums.

The rates and ceilings of these programs are set by law and can change: the official pages in the sources are what govern the amounts in force. The mechanism itself is stable: contributing triggers the grant; skipping a year normally lets grant room carry forward, under each program's own rules.

Withdrawals: two very different doors

The money in an RESP splits into two pools, and each leaves through its own door:

• Capital — the contributions. It normally comes back out tax-free: it was taxed before it went in.
• EAPs — Educational Assistance Payments: the accumulated grants and gains. Paid to the student enrolled in qualifying studies, they are taxable in the student's hands — and since a student typically has little income, the tax actually paid is generally modest.

A purely mechanical example: an RESP holds $16,000 — $10,000 of contributions and $6,000 of grants and growth. A $2,000 capital withdrawal adds to no one's income; a $2,000 EAP adds to the student's taxable income, not the parent's.

If the child doesn't pursue studies

The scenario every parent asks about. Several paths exist, each with conditions:

• Wait: an RESP can normally stay open for many years — the law sets a maximum lifespan — and studies begun late still qualify.
• Change beneficiary: depending on the plan's rules and the family relationship, a sibling can in principle take over.
• Close the plan: contributions return to the subscriber tax-free; the grants go back to the governments; accumulated gains can, under conditions, be taxed in the subscriber's hands with an additional tax, or transferred to their RRSP if contribution room exists — the exact conditions are set out on the official pages.

What this changes for your tracking

In Everyfolio, an RESP is tracked like any other account: create an RESP-type portfolio and record its transactions. Two reading notes: the grants received appear on the broker statement as deposits that did not come from you — they are not a return produced by your holdings; and the capital/EAP split is a tax mechanic, not an accounting one — your statement does not label each dollar, the plan's records carry that split.