The disability savings plan

Thus the RESP provides both a deferral of tax on the investment income and an ‘income- averaging’ benefit through the shift in the tax liability on that investment income from the contributing parent to the (lower-income) student.1 Despite these tax advantages, RESPs were not very popular until 1998 when the federal government enriched the plan by adding the Canada Education Savings Grant (CESG). [...] There is no tax event – no tax deduction to the parent, no taxation of the amount in the hands of the child, and no loss of tax credits or program benefits by the child. [...] This result – $1,000 of net benefit to the child for $1,000 of cost to the parent – provides a benchmark for assessing the attractiveness of options involving the pre-funding of financial support. [...] The student’s annual income while studying is not expected to exceed the total of the amounts of the basic personal credit, the education credit and the tuition credit. [...] This rate exceeds the pre-tax real rate of return because of an income-averaging benefit associated with the shifting of taxable income from the contribution year, with an MTR of 39.7 percent, to the withdrawal year, where the MTR is 31.15 percent.