TaxTips.ca - RESPs - What happens if we miss a payment or cancel the RESP?

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Missed RESP Payments

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Registered Education Savings Plans (RESPs) -> Missed payments.

What happens if we miss a payment or cancel the RESP?

Consequences of missed payments or RESP cancellation depend on the type of RESP (See What types of RESPs are available?), and the individual contract. It is extremely important to understand the terms of the RESP contract before signing.

Possible consequences of missed payments, depending on plan:

	interest may be charged
	membership in the plan may be terminated

Consequences of cancellation of the RESP:

	Canada Education Savings Grants (CESGs) must be repaid
	subscriber contributions may be returned to the subscriber tax-free, after all fees are deducted

Further consequences of cancellation, depending on the type of plan:

	earnings may be forfeited
	earnings may be paid to the contributor as Accumulated Income Payments (AIP), with tax paid at marginal tax rates plus 20%
	earnings may be rolled into the contributor's RRSP, if contribution room is available, thus avoiding the taxes
	for more information see How are funds paid out of the RESP, and are they taxable?.

Tip: Make sure you understand the terms of the RESP contract before signing!

Revised: July 19, 2010

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