What is an RESP and how do government grants influence the value?

• A. RESP provides no tax advantages; government grants are unlimited
• B. RESP is taxed annually; grants reduce taxes
• C. RESP allows tax‑advantaged growth; CESG grants boost contributions; lifetime limits apply and grants depend on eligibility
• D. RESP is only for residents with no eligibility requirements

Answer: (C)

An RESP is a savings plan for a child’s education that grows tax-sheltered until the money is used for post-secondary costs. Government grants, such as the CESG, add money to the plan, effectively boosting its value beyond what you contribute. These grants are not unlimited; they depend on eligibility and contributions, and there are lifetime limits on how much grant money a beneficiary can receive. Because the growth inside the RESP isn’t taxed as it earns, the funds can compound more efficiently, and when you withdraw for education, the withdrawals (including grants and earnings) are taxed in the student’s hands, typically at a low rate. This combination—tax-sheltered growth, grant boosts that depend on eligibility and have lifetime limits, and favorable tax treatment of educational withdrawals—explains why this option correctly describes how an RESP and government grants influence value.