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Canada Education Savings Program - RESP Provider User Guide

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Chapter 2-2: The Basic and Additional Canada Education Savings Grant (CESG)

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10. Repaying the CESG

Certain circumstances will require a repayment of the CESG to the Government of Canada (HRSDC). These fall under one of two categories (or types), as follows:

• Withdrawal of assisted contributions (the most common repayment transaction).
• Other repayment circumstances.

The type of circumstance will determine the method used to calculate the amount of CESG that must be repaid.

10.1. The Repayment Process

Regarding repayment of the CESG, the RESP Promoter must:

1. Recognize and identify the transactions that will result in a CESG repayment.
2. Determine the amount of CESG repayment.
3. Submit the required financial transaction(s) to CESP, indicating the amount of and reason for the repayment. See 10.6 Submitting Repayment Information to CESP, later in this chapter.

10.2. Withdrawal of Assisted Contributions

The CESG was introduced as a contribution-based incentive to encourage parents to save for their child's post-secondary education. Consequently, there are specific rules that govern the withdrawal of contributions from an RESP.

10.2.1. Order of Contribution Withdrawals

When a subscriber withdraws contributions from an RESP, they will be withdrawn in the following order:

1. Assisted contributions - 1998 and after
2. Unassisted contributions - 1998 and after
3. Unassisted contributions - pre-1998

A subscriber can only withdraw contributions from an RESP, without having to repay the CESG, if the withdrawal is:

• to correct an overcontribution less than $4000
• because a beneficiary of the plan is eligible to receive an EAP

In any other instance, the withdrawal of assisted contributions will require a repayment of the CESG.

10.2.2. Calculating the CESG Repayment - Withdrawal of Assisted Contributions

With the introduction of the Canada Education Savings Act and its related regulations, the percentage of the repayment will vary depending on:

• the amount of the withdrawal
• the amount of assisted contributions
• the amount of CESG received

The following formula is used to calculate the CESG repayment amount when assisted contributions are withdrawn. This amount will be the lesser of:

1. The amount calculated using the formula A / B x C where:
   • A = Balance in the CESG account of the RESP immediately before the withdrawal of assisted contributions
   • B = Balance of the total assisted contributions in the RESP immediately before the withdrawal of assisted contributions
   • C = Amount of the assisted contributions withdrawal

   OR

2. The balance in the CESG account of the RESP immediately before the withdrawal of assisted contributions (represented by "A" in the formula).

To determine the amount of CESG to be repaid, the RESP Promoter must determine the amounts represented by "A", "B" and "C" and calculate the results. Consider an example involving both the Basic and Additional CESG:

For example...

Year	Age of Beneficiary	Assisted Contri butions	Basic CESG Paid	Additional CESG Rate	Additional CESG Paid	Total CESG	Contri butions Withdrawn
2005	Born	$2,000	$400	20% (of first $500)	$100	$500
2006	1	$2,000	$400	20% (of first $500)	$100	$500	$800
Totals:		$4,000	$800		$200	$1,000	$800

The formula values for A / B x C are:

• A = $1,000 Balance in the CESG account of the RESP immediately before the withdrawal of assisted contributions
• B = $4,000 Balance of the total assisted contributions in the RESP immediately before the withdrawal of assisted contributions
• C = $800 Amount of the assisted contributions withdrawal

Based on the previous example, the following amounts can be populated:

1. The amount calculated using the formula A / B x C:
   • $1,000 / $4,000 x 800 = $200

   OR

2. The balance in the CESG account of the RESP immediately before the withdrawal of assisted contributions (represented by "A" in the formula):
   • $1,000

The result of the formula A / B x C, which is $200, is the lesser of the two amounts and the amount of CESG that must be repaid.

Furthermore, the beneficiary will be ineligible to receive the Additional CESG under any RESP for the remainder of 2006 as well as for the following two calendar years. See 10.3 Withdrawing Contributions After March 22, 2004 below.

10.3. Withdrawing Contributions After March 22, 2004

The withdrawal of assisted contributions from an RESP after March 22, 2004, will result in a beneficiary of the RESP from which the withdrawal occurred, being ineligible to receive the Additional CESG rates for the balance of that calendar year and for the next two calendar years.

This rule is administered across all plans. Therefore, situations will arise when a contribution withdrawal has occurred on one plan that effectively makes a beneficiary ineligible for any Additional CESG on all plans.

There are, however, exceptions to this rule. The beneficiary will not lose eligibility for the Additional CESG if:

• The withdrawal of contributions occurs when a beneficiary is eligible for an EAP.
• The withdrawal is an eligible transfer.
• The withdrawal is to correct an over-contribution of less than $4,000 (across all RESPs) at the time of the withdrawal.

If a withdrawal is made from a family plan with multiple beneficiaries and not covered by these exceptions, all of the beneficiaries of the plan will be considered ineligible, including all other RESPs where they are named as beneficiaries.

10.4. Withdrawing Pre-1998 Contributions

Since the Canada Education Savings Program was introduced in 1998, RESP contributions made prior to that year did not qualify for the CESG. Therefore, the CESG was not paid on pre-1998 contributions.

RESP contributions made before 1998 cannot be withdrawn and then re-contributed to the same or another RESP (for the same beneficiary) with the intention of receiving the CESG.

10.5. Other Repayment Circumstances

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

• The RESP is terminated.
• The registration for the RESP is revoked.
• An accumulated income payment (AIP) is made.
• A payment to a designated educational institution is made.
• 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.
• An ineligible transfer occurs.
• An ineligible beneficiary replacement occurs.
• The Additional rates of CESG have been paid and the relationship criteria where all beneficiaries must be siblings is no longer met.
• The beneficiary does not pursue post-secondary education and the CESG cannot be used as an EAP by another eligible beneficiary of the plan.

10.5.1. Calculating the Repayment Amount - Other Circumstances

If any of the above reasons occur, the amount of the CESG that is repayable is equal to the lesser of:

• The total in the CESG account immediately before the occurrence
  OR
• The fair market value of the property held in the RESP, immediately before the occurrence

10.6. Submitting Repayment Information to CESP

Financial transactions (Record Type 400) are used to record the movement of funds into or out of the RESP (with the exception of earnings). A repayment of the CESG (or any other incentive) is considered a financial transaction.

When submitting repayment information to CESP, the RESP Promoter will submit the following transaction to the CESP System:

• RT 400, Transaction Type 21 (Grant repayment)

In addition, the transaction will identify the Repayment Reason, with one of the following codes:

• 01 Contribution withdrawal
• 02 AIP (Accumulated Income Payment)
• 03 Contract termination
• 04 Ineligible transfer
• 05 Ineligible beneficiary replacement
• 06 Payment to an educational institution
• 07 Revocation (of plan)
• 08 Ceases to meet Sibling-Only condition
• 09 Deceased (beneficiary)
• 10 Overcontribution withdrawal
• 11 Other

In all repayment transactions, RESP Promoters must report only the amount of incentive being repaid to CESP. For more detailed information about how transactions are processed between the RESP Promoter and the CESP System, see Chapter 1-3: The CESP System and Interface Transaction Standards (ITS).

10.7. How Funds are Used to Repay the CESG

The repayment transactions submitted to CESP will depend on whether or not there are sufficient funds in the RESP at the time repayment is required.

10.7.1. When Sufficient Funds Exist in the RESP

If there are sufficient funds in the RESP, the RESP Promoter will repay the CESG from the corresponding RESP account. For example:

Repayment Reason:

The CESG will not be used as an EAP by the beneficiary or other eligible beneficiary and the plan is terminated. The RESP individual (non-family) plan looks like this:

• RESP Market Value: $ 26,829
• Earnings: $ 9,229
• Contributions: $ 14,000
• CESG: $ 3,600

CESG Repayable: $ 3,600

Based on the above example, the RESP Promoter will withdraw the funds from the RESP and submit the following repayment transaction to CESP.

RT 400-21(03): Grant repayment transaction, reason code (03), identifying a contract termination, with $3,600 in the CESG amount field identifying the repayment amount.

When the RESP includes other incentives, a separate calculation is used to determine the amounts repayable. Refer to the related incentive chapters in Section 2: Education Savings Incentives.

10.7.2. When Insufficient Funds Exist in the RESP and the Plan is Terminated

When the RESP is terminated, any CESG (or any other incentive) must be repaid.

If the RESP has experienced a loss and there are insufficient funds to cover the total amount of CESG repayable, the RESP Promoter must submit a Termination Adjustment Transaction to CESP to advise them of the shortfall.

Losses are first attributed to earnings, and then to contributions. Once these accounts are depleted, any remaining losses are apportioned equally across the incentive accounts in the RESP.

The following example illustrates how the RESP Promoter will determine the amount and repayment transaction that must be submitted to CESP when only the CESG has been paid into the RESP.

Based on this example, the CESG repayable ($1,200) exceeds the market value of the RESP ($1,000). Therefore, the RESP Promoter must repay the lesser amount of $1,000.

To account for the difference of $200, the RESP Promoter must also send a Termination Adjustment Transaction to inform CESP of the shortfall, but only when the RESP is terminated.

The following transactions are used to submit this information:

• RT 400-21(03): Grant repayment transaction with a reason code of (03), identifies a contract termination, and $1,000 in the CESG amount field identifies the repayment amount.

• RT 400-22: Termination Adjustment transaction, identifies $200 as the amount of the shortfall (market value less than CESG paid into the RESP).

Even if the CESG repayment is $0, as a result of losses in RESP earnings, contributions, and the CESG, the two transactions above must still be reported to CESP.

When the RESP includes other incentives, a separate calculation is used to determine the amounts repayable. Refer to the related incentive chapters in Section 2: Education Savings Incentives.

Note: In most cases, the RESP Promoter's financial system will automatically calculate the amount of incentive(s) repayable. However, understanding how to determine the amount to be repaid will help RESP Promoters to communicate this information to their clients.

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Date Modified:

2011-12-29