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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
If the beneficiary uses the funds for qualifying educational
programs, the tax consequences are
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
the amount of the payments are included in the taxable income of
the beneficiary, regardless of whether the RESP was holding investments
in stocks. However, the
beneficiary may claim tuition tax credits and education tax credits to
offset the income.
Payable to Non-Resident Beneficiary
Canada Education Savings Regulations s. 10(3)
Note that if the beneficiary of the RESP is a
non-resident at the time of Educational
Assistance Payments, then the CESG portion of the RESP cannot be
paid. A beneficiary can be a student at a foreign educational
institution and still be considered a Canadian resident in some cases.
See our information on Canadian
Tax May be Payable on RESP Payments
Income Tax Act Part X.5 s. 204.94 Payments under
Registered Education Savings Plans
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
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
subject to regular income tax plus an additional 20%
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
Accumulated Income Payments (AIP)
Income Tax Act s. 146.1(1), 146.1(7.1), 146.1(2)(d.1),
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
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.
Note that an AIP cannot be made unless it made to, or
on behalf of, a subscriber under the plan who is resident in Canada when
the payment is made.
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.