The finish line is approaching and your child is about to graduate from high school? They will soon be able to start receiving Educational Assistance Payments (EAPs) under the terms of your Registered Education Savings Plan (RESP). When an RESP beneficiary graduates from high school and enrolls in a qualifying post-secondary program, they can start receiving payments to help them through this new stage of their lives.
Educational Assistance Payments (EAP) are made up of two categories of accumulated amounts:
The RESP capital (also called “savings”) refers to all contributions and belongs to the subscriber. While not part of EAPs, capital generates investment income when allowed to grow over time. Even though these contributions belong to the subscriber, they can still be transferred to the beneficiary.
As long as the beneficiary is enrolled in an eligible post-secondary education program, the Educational Assistance Payments belong to them. The EAP amounts paid to the beneficiary are added to their income and must be included in their annual tax return.
To access the benefits of your investment (i.e., Educational Assistance Payments), the beneficiary must be enrolled in an eligible training program or a specific training program:
Eligible training programs are full-time post-secondary training programs, i.e., of at least three consecutive weeks, with at least 10 hours per week devoted to courses or assignments.
Specified training programs are part-time post-secondary programs, i.e., of at least three consecutive weeks, with at least 12 hours per month devoted to courses.
Consult the directory of accredited educational institutions to ensure that the educational institution your child wishes to attend is eligible for EAPs. As a subscriber, you will need to provide proof of enrollment to your RESP provider, who will handle the withdrawal requests for you.
Depending on the post-secondary program chosen by the beneficiary, certain EAP restrictions may apply.
In special cases where expenses related to the first 13 weeks of study are higher than average and exceed the $8,000 or $4,000 permitted, Employment and Social Development Canada may authorize a higher EAP withdrawal. To do so, the RESP provider must submit a special application to the Canada Education Savings Program. Certain conditions apply, depending on the beneficiary’s specific situation and program of study.
When the beneficiary starts their post-secondary studies, the subscriber can begin making RESP withdrawals and the beneficiary can use the funds for all education-related expenses:
Keep in mind that EAPs are used solely to finance the beneficiary’s post-secondary education. If withdrawals are made to cover other types of expenses, the amounts withdrawn are considered accumulated income payments (AIPs) and will be taxed accordingly.
There are various ways to plan your RESP withdrawals. You will need to take a number of factors into account to optimize your withdrawals.
We encourage you to talk to an advisor, who can help you decide on an appropriate withdrawal strategy that’s as smart as your investment strategy (and your child).
1. Up to the annual limit set by the Income Tax Act (Canada). For 2023, this amount is $26,860. It is indexed annually.