Do I qualify for free money toward my child’s education? The Canada Learning Bond explained
Whoever said you can’t put a price on a good education probably hasn’t taken a look at the cost of tuition these days. The post-secondary experience, like pretty much everything else, isn’t as affordable as it once was.
The Registered Education Savings Plan (RESP) is the government’s way of trying to make it easier for Canadians to afford those costs. RESPs offer several perks, including the Canada Learning Bond (CLB), which is specifically for lower-income families. Here is how it works.
What is an RESP?
An RESP is an investment account that helps family and friends save money for a child’s post-secondary needs. Contributions to an RESP aren’t tax deductible, but taxes are deferred until they’re withdrawn, and even then, only a portion of those funds are subject to tax in the hands of the student, who presumably is in a lower tax bracket. The government offers two types of grants to help fund RESPs:
The Canada Education Savings Grant (CESG) – Most Canadians who contribute to an RESP qualify for the CESG, which matches 20% of contributions subject to a $500 per-year and $7,200 lifetime maximum CESG.
The Canada Learning Bond (CLB) – The CLB offers up to $2,000 per eligible child. Unlike the CESG, which requires contributions to get the government’s money, the CLB can kick in as soon as an RESP is opened.
What is the Canada Learning Bond?
The CLB is a grant that helps eligible children from low-income families afford to study at any of a number of designated post-secondary institutions. You’ll get an initial $500 payment in the first year a child qualifies, followed by contributions of $100 for every subsequent year they remain eligible until they turn 15 or the $2,000 maximum has been reached. An extra $25 is provided in the first year to help cover the costs of opening the RESP.
How do you qualify for the Canada Learning Bond?
To gain access to $2,000 of free money, the beneficiary must be born on or after January 1, 2004, have an RESP opened in their name, be a Canadian resident with a social insurance number (SIN) and be from a low-income family.
For the 2022–2023 benefit year, this means that families with one to three children must earn an adjusted net income of no more than $50,197; for a family with four children, net income must be less than $56,636; for five children, it must be less than $63,101. For information on larger families, visit the CRA website.
How do you apply for the Canada Learning Bond?
If you’re opening an RESP, you, as the subscriber, should be offered an application for the CLB. To apply, you’ll need a SIN and the beneficiary’s SIN. If you’re not the beneficiary’s primary care provider, you’ll also need that person’s SIN. Once the government receives the application, it will determine if the beneficiary is eligible and automatically deposit the funds into the RESP for every year in which they qualify.
If you’re just learning about the CLB now, don’t worry – the government funds are retroactive, meaning the primary caregiver can request access to this money up until the day before their beneficiary turns 18. If the beneficiary does not attend a post-secondary institution, the CLB must be returned to the government.
Is there anything else to know?
Although $2,000 may not seem like a lot of money in the grand scheme of things, it’s important to note that an RESP isn’t just for savings – it’s an investment account. If the money can earn 5% annually over 15 years, it would be worth $4,158. And that’s without adding a cent of your own money.
While you aren’t required to make contributions to an RESP to receive the Canada Learning Bond, the power of compound interest makes it a good idea to keep investing as often as you can. If you were to contribute just $100 a month over that 15-year period at the same 5% rate of return, your child’s college fund would grow to an impressive $30,856.
No matter what your tax bracket is, opening an RESP is a good way to keep your kid’s options open, regardless of what the future holds. The price of higher education may not be coming down anytime soon, but with a little time and effort, you can help ensure it stays within reach.
