Subscribers to an RESP make contributions that build up tax-free earnings – tax-free because subscribers cannot deduct payments made to the plan from their income. The government contributes a certain amount to plans for children under 18 under the Canada Education Savings Grant (CESG).
Payments are made by a contributor (parent) on behalf of a beneficiary (child). Once the child is in a post-secondary institution, he or she will receive educational assistance payments (EAPs). These EAPs count as income for the child (beneficiary). If the beneficiary doesn’t receive payments – either by choice of the contributor or because the beneficiary does not attend a post-secondary institution, the contributor will receive the amount in the RESP back tax-free.