Parents won’t be able to contribute to RESPs opened by the government for their children through the autoenrollment scheme passed into law earlier this year.
Parents will, however, be able to take over the accounts and begin contributing.
The federal government first proposed RESP autoenrollment in its 2024 budget, and it became law with the passage of the first budget bill on June 20. However, the changes to the Canada Education Savings Act outlined in that bill will not come into force until a future proclamation date.
Under the initiative, an RESP will be opened for a child of a low-income family if their family has yet to enroll them in a plan by the time they turn four years old. That way, eligible kids will receive up to $2,000 of Canada Learning Bond (CLB) payments even if their family never opens an RESP on their behalf.
A family does not need to contribute to an RESP to receive the CLB, but must open an RESP.
“This is just [the government] getting [families] started, saying, ‘Okay, if you haven’t [opened an RESP], and the kid’s now age four, we’ll do it for you,'” said Sara Kinnear, director of tax and estate planning with IG Wealth Management in Winnipeg.
The Department of Finance provided further details on the RESP program in draft legislation released this month.
Under the program, the child’s family cannot contribute to the autoenrolled plan, but can take it over from the government and then do so. At the age of 18, the child could take over the plan, receiving the CLB plus any interest.
“If I’m the parent, I would probably want to take [the RESP] over [sooner rather than later], not just so that I could choose the investment for the CLB, but also so that I have the option to make contributions of my own in those years when I have money to [do so],” Kinnear said.
The income thresholds for receiving the CLB are indexed.
For example, for the period July 1, 2023 to June 30, 2024, a child would receive the CLB if their family had one to three children and an adjusted family income of $53,359 or less. The threshold rises as the family has more children.
The CLB provides $500 in the first year of eligibility, plus $100 for each additional year of eligibility up to age 15, for children born in 2004 or later.
The autoenrollment plan will begin in 2028-29 for eligible kids born in 2024 and beyond. Employment and Social Development Canada (ESDC) will deposit up to $800 in CLB into the plan, with $500 paid for the child’s first year of eligibility and $100 for the next three years.
The $800 of CLB would represent retroactive benefits for the years before the child’s fourth year that they would have received if an RESP had been established when the child was born, if they had been eligible for the CLB in each of those years.
ESDC would also deposit $100 for each year after the first year of eligibility, for a total of $2,000 in CLB by the time the child turns 16.
The draft legislation also proposed that autoenrolled RESPs cannot make educational assistance payments — amounts paid to a student beneficiary from an RESP to help finance post-secondary costs. Under the proposal, a parent or adult child would have to take over the RESP for the child to receive these payments.
The government has not yet indicated how the CLB deposited into autoenrolled plans would be invested, but Kinnear believes the government would choose a guaranteed investment vehicle.
Kinnear said much about how autoenrolled RESPs will operate and be administered remains unknown, including how the government might work with promoters — financial institutions that offer RESPs — to set up autoenrolled plans.
In the draft legislation, the government proposed that the minister responsible for the Canada Education Savings Act, which is the minister of the ESDC, would be the “designated subscriber” of the autoenrolled RESP.
The government also proposed that the RESP promoter wouldn’t need to inform the parent of a child for which a plan has been opened. However, “it is contemplated that [the government] will inform the necessary parties that the plan has been established.”
The draft legislation is out for consultation until Sept. 11.
According to the government, 130,000 additional children will receive the Canada Learning Bond each year through automatic enrollment.
More changes to RESPs and CLBs
As stated in the budget bill now passed into law, an eligible beneficiary can claim the CLB retroactively up until they turn 31 for the years in which they were eligible. Previously, a beneficiary could claim the CLB retroactively up until they turned 21.
The 2024 budget also proposed that beginning in 2028-29, parents of children born before 2024 would be able to ask the ESDC to open a RESP for their child and begin automatic deposits of CLB. That proposal would “ensure that all children can benefit from this simplified process,” the government said in the budget.
This proposal was in neither the June budget bill nor in the draft legislation released this month.
Editor’s note, Aug. 28: Maja Stefanovska, a spokesperson with the ESDC, said this proposal will be enacted because “no legislative amendments were required for caregivers of children born before 2024 or CLB-eligible young adults to request that an RESP be opened and CLB deposited.”