After administration and other fees are paid to the promoter
out of the RESP contributions by the subscriber, how the funds are paid out
depends on whether or not the beneficiary pursues post-secondary
education.
If the beneficiary uses the funds for qualifying educational
programs, the tax consequences are
as follows:
The subscriber contribution portion of payments to the beneficiary
or subscriber is not taxable, and there is no restriction on how these
funds are used.
The CESG and accumulated earnings on all contributions are paid out to
the beneficiary as Educational Assistance Payments (EAP), and are
considered taxable income to the beneficiary. However, the
beneficiary may claim tuition tax credits and education tax credits to
offset the income.
If the RESP is not going to be used by the beneficiary for
qualifying educational programs:
the assets of the RESP can be transferred to another RESP under certain
circumstances
subscriber contributions can be refunded tax-free to the
subscriber or beneficiary, after all fees are paid to the promoter out
of these contributions.
CESG must be repaid.
earnings are forfeited
with some plans, or
earnings may be paid out to the subscriber, under certain
conditions, as Accumulated Income Payments (AIP).
The subscriber must be resident in Canada
AIP are
subject to regular income tax plus an additional 20%
tax
both taxes may be avoided if the AIPs are transferred to the RRSP of the
subscriber or the subscriber's spouse. There must be sufficient
contribution room in the RRSP, and the transfer is limited to a maximum of
$50,000.
Accumulated Income Payments (AIP) can only be made if any
one of the three following conditions apply:
the plan has existed for 10 years and each individual (other than a
deceased individual) who is or was a beneficiary has reached 21 years
of age and is not eligible to receive an educational assistance
payment ;
the plan has existed for 26 years, unless the plan is a specified
plan (in general a non-family plan where the beneficiary is entitled
to the disability tax credit for the beneficiary's tax year ending in
the 22nd year of existence of the plan) in which case the
plan has existed for 31 years;
all the beneficiaries under the plan are deceased.
RESP beneficiaries
with disabilities
CRA may waive the conditions for AIP payments if it is
reasonable to expect that a beneficiary under the plan will not be able to
pursue post-secondary education because he or she suffers from a severe
and prolonged mental impairment.
The information on this site is not intended to be a
substitute for professional advice. Each person's situation differs, and
a professional advisor can assist you in using the information on this web
site to your best advantage.
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