Withdrawals, taxes, and school proof

Two kinds of withdrawal: contributions and EAPs

Money comes out of an RESP in two ways. Your own contributions can be taken out tax-free and returned to you, the subscriber, and you can pass them on to the student. Educational Assistance Payments (EAPs) are the grants, bonds and growth, paid to the student while they're in school.

EAPs are taxed as the student's income, and the provider reports them on a T4A slip with code 042. Students often owe little or no tax, because their income is low while they study.

Which to take, and when, is a planning choice. Spreading EAPs over the years of study helps use up the grants and growth while the student's income is low, so less is left over at the end. Contributions can come out whenever you need them.

Proof of enrolment, timing and first-term limits

Before paying an EAP, the provider asks for official proof of enrolment, and may ask for receipts. Ask the school for it early: RESP money isn't instant.

EAPs are capped at the start: $8,000 in the first 13 consecutive weeks of full-time study, and $4,000 for each 13-week period of part-time study. After the first 13 weeks of full-time study there's no cap while the student qualifies. If the first term costs more, contributions can usually make up the difference.

Qualifying full-time programs in Canada last at least 3 consecutive weeks with at least 10 hours a week; part-time programs at least 3 consecutive weeks with at least 12 hours a month. Programs abroad can qualify too: full-time programs of at least 13 weeks, or 3 weeks at a university.

A student can still receive EAPs for up to 6 months after leaving a program, if the plan allows it and the costs would have qualified while they were enrolled.

If the money isn't used for school

If the beneficiary doesn't go on to school, you can keep the plan open in case they go later, name a different beneficiary, transfer the money to another registered plan, or close the RESP.

When the plan closes, your contributions come back to you tax-free. Grants that aren't used for school go back to the government. In a family plan, the CESG can first be shared with a sibling who still has room, but the Canada Learning Bond can't be shared.

The growth can be paid to you as an Accumulated Income Payment (AIP), generally once the year of the plan's 9th anniversary has passed and every beneficiary is at least 21 and not in school. AIPs are taxed at your regular rate plus an extra 20% (12% in Quebec). If you're the original subscriber (or in a few other cases) and have RRSP room, you can move up to $50,000 of AIPs into your RRSP to avoid the extra tax on that amount.