Question

The Canada Education Savings grant is taxable to the beneficiary when paid from a Registered Education Savings Plan (RESP).T/F

Answer 1

The Canada Education Savings Grant within an RESP is taxable to the beneficiary as part of the Educational Assistance Payments. The original contributions are not taxable, but the grant and investment earnings are, once withdrawn for educational purposes. Students typically have low tax liabilities due to their lower income and available tax credits.

Step-by-step explanation:

The statement that the Canada Education Savings Grant (CESG) is taxable to the beneficiary when paid from a Registered Education Savings Plan (RESP) is true. The money from an RESP is typically composed of contributions, the CESG, and investment earnings. When a student withdraws money from the RESP for educational purposes, these withdrawals are called Educational Assistance Payments (EAPs). The EAPs consist of the CESG and the investment earnings, not the original contributions, which are not taxable because they were made with after-tax dollars.

The portion of the EAP consisting of the CESG and investment income is indeed taxable to the beneficiary, who is usually the student. However, since students often have lower income and can take advantage of various tax credits and deductions, the tax burden is usually minimal. Note that the beneficiary must report the EAP as income on their tax return for the year they receive it.

Answer 2

The Canada Education Savings Grant (CESG) is indeed taxable to the beneficiary when it is withdrawn from a Registered Education Savings Plan (RESP) as part of the Educational Assistance Payments.

Step-by-step explanation:

The statement that the Canada Education Savings Grant (CESG) is taxable to the beneficiary when paid from a Registered Education Savings Plan (RESP) is true. The CESG, alongside the investment earnings generated in the RESP, are considered part of the Educational Assistance Payments (EAPs). When EAPs are withdrawn to finance the beneficiary's post-secondary education, they become taxable income to the student. Typically, because students often have lower income and can take advantage of various tax credits, the tax impact is usually minimal.