As with the example of TFSAs, Registered Educational Savings Plans (RESPs) are also purchased with personal, after tax dollars. However, unlike TFSAs the Government gives you a maximum grant of $500 (20% of the first $2,500 invested) each year into an RESP. Some would argue that with a maximum contribution set at $5,000 per year, this grant of $500 works out to an immediate 10% return on your money even before it starts to grow.

The reality for incorporated professionals is that, even with the grant, if they have to draw money from their corporation to deposit into an RESP they are in fact starting the year in a negative position. If we look at the example of an incorporated individual who is in a 30% tax bracket, hauling just over $7,125 from their Corporation to deposit $5,000 into a RESP means that you net a loss of $2,125 per year on each deposit calculated as follows:

$7,125 - $5,000 = $2,125 in additional taxes paid to make the RESP deposit. If we add back to the $500 Government Grant we are still out $1,625. The Government should be sending you a BIG THANK YOU for your RESP deposit!!!