What are the tax advantages of RESPs and RRSPs?

The money contributed to a retirement saving plan is tax-deductible, and taxes on that money and the interest it accumulates (hopefully..!) will not be taxed until you withdraw it after you retire. Your income will most likely be lower at that point, you will be in a lower tax bracket, and will pay less taxes on that amount.

An education savings plan on the other hand is funded with after-tax dollars, so the money that is contributed to the plan is not tax deductible, unlike an RRSP.

The interest and grant it accumulates within it, however, does grow tax-free. The contributor (parent, grandparent, aunt, uncle ...) does not pay taxes on the growth of the fund. At maturity, when the child turns 18, the principal that was saved in the RESP account will be returned to the contributor (parent, grandparent, aunt, uncle,...), and because they contributed with after tax dollars, they do not pay taxes on this.

 

The interest, grant and interest on the grant will get paid out to the child/student, but because they very likely will be in a low tax bracket, very little taxes, if any, will be payable on this amount.

There are tax implications if the child does not pursue post-secondary education: besides transferring the money to a sibling (this would be the best option), the money may be withdrawn and transferred to an RRSP if there is contribution room available. Otherwise, the money can be withdrawn as an Accumulated Income Payment (AIP), and incur a 20% tax penalty.