Written by: Kaleido
Registered education savings plans (RESPs) are the best way of planning financially for your children’s future. The RESP is a very attractive investment vehicle: you can save money tax-free and get government grants that encourage parents to invest in their children’s post-secondary education.
First, let’s talk about what educational assistance payments (EAPs) are. They consist of the government grants and investment income accumulated over the years in your RESP. In other words, there are two types of funds in your RESP:
The subscriber has to submit an application to withdraw funds from the RESP. It’s also up to the subscriber to decide what types of funds are withdrawn: EAPs only or a combination of EAPs and capital. Keep in mind that, if your situation permits, it may be beneficial for the management of your personal finances and your savings to keep the capital in your RESP, as it will continue to generate income as long as the account is kept open.
To access educational assistance payments, the beneficiary (student) must be enrolled in a qualifying educational program or a specified educational program:
To make sure that the educational institution in which your child is enrolled or wishes to enrol is eligible for EAPs, see the Government of Canada’s list of designated educational institutions. As the subscriber, you will be required to provide proof of registration to your RESP provider, which will submit the withdrawal application on your behalf. The beneficiary may receive EAPs for up to six months following the end of his or her enrolment in the program.
Depending on the post-secondary program selected, the beneficiary will have some restrictions on EAP withdrawals. For a full-time program, a withdrawal of up to $5,000 is permitted during the first 13 weeks of the program. After the first 13 weeks, there is no limit on the amounts you can withdraw.*
For a specified educational program, which means it is part-time, a withdrawal of up to $2,500 is allowed for the 13 weeks of the program, but the withdrawal must be made at the end of the 13 weeks, not before.
In special cases where the expenses for the first 13 weeks of study or the registration fees are higher than average and would exceed the $5,000 or $2,500 limit, Employment and Social Development Canada may authorize a larger EAP withdrawal. In such cases, the RESP provider must submit a special application to the Canada Education Savings Program, and certain conditions will apply, depending on the specific circumstances of the beneficiary and his or her education program.
When the beneficiary starts his or her post-secondary program, the subscriber can begin making withdrawals from the RESP, and the beneficiary can use the funds for all education-related expenses. That includes not just tuition and school supplies but also housing, transportation, food and other expenses.
EAPs are used to fund the beneficiary’s post-secondary education. If withdrawals are made for a different purpose, the amounts withdrawn are treated as accumulated income payments (AIPs) and will be taxed accordingly. AIPs are subject to regular income tax rules and to the additional 12% tax for residents of Quebec.
Contact one of our representatives or our Call Centre, and we will be happy to help you determine the best way to make withdrawals from your RESP.
*Up to the annual limit set in the Income Tax Act (Canada). For 2023, the limit is $26,860. It is indexed annually.