How Are Funds Paid Out of an RESP, and Are They Taxable?

An RESP consists of the following:

contributions of government grants, including

	Canada Education Savings Grants (CESG)
	Canada Learning Bond (CLB) grants
	Alberta Centennial Education Savings (ACES) Plan grants

accumulated earnings on all contributions

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 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.

Recommended article: New tax year brings new chance to withdraw strategically from this registered plan by Jamie Golombek, FCPA, FCA, CFP, CLU, TEP.

CESG Not 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 residents.

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 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)

Income Tax Act s. 146.1(1), 146.1(7.1), 146.1(2)(d.1), 146.1(2.2)

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 22^nd 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.

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.

See also - links to all information on TaxTips.ca related to persons with disabilities.

Transfers from an RESP to a Registered Disability Savings Plan (RDSP)

Revised: September 20, 2024