Blog Layout

Methods to withdraw RESP

Mark Virgil Lofranco • 9 December 2024

Navigating the financial landscape of your child’s education expenses, especially with rising inflation, can be challenging. Whether you're already contributing to a Registered Education Savings Plan (RESP) or considering opening one to fund your child’s post-secondary education, it’s essential to understand the rules and benefits associated with RESP withdrawals.



Here’s a comprehensive guide to help you make the most of your RESP in Canada.


What is an RESP?

A Registered Education Savings Plan (RESP) is a long-term savings account designed to help parents and guardians save for a child’s post-secondary education. The funds can be used to pay for tuition, books, tools, transportation, and even rent.


As a "subscriber" (the person who opens the account), you can set up an RESP with a financial institution (known as a "promoter") for the following beneficiaries:


  • Your own child
  • Someone else’s child (e.g., a grandchild, niece, nephew, or friend’s child)
  • Yourself or another eligible adult

There are three types of RESP plans available, depending on your situation. Let’s dive deeper into the benefits associated with RESPs.


Three Key Government Benefits of RESPs


There are three primary RESP benefits offered by the Canadian government:

1.Canada Learning Bond (CLB):

  • The CLB provides financial assistance to children from low-income families. No contributions are required to access this benefit. The CLB offers $500 in the first year and $100 annually until the child turns 15, up to a lifetime maximum of $2,000. Eligible adults born in 2004 or later can receive the CLB until the age of 21.


2. Canada Education Savings Grant (CESG):


  • The CESG matches 20% of your RESP contributions, up to $500 per year, for a lifetime maximum of $7,200 per child. Additional amounts of up to $100 per year are available for low- and middle-income families.


3.Provincial Benefits in British Columbia and Québec:

  • In BC, the BC Training and Education Savings Grant (BCTESG) offers a one-time $1,200 grant for eligible beneficiaries.
  • Québec provides the Québec Education Savings Incentive (QESI), a refundable tax credit of 10% of RESP contributions, up to $250 annually, with an additional $50 for low- and middle-income families.


How Much Does the Government Contribute to an RESP?

Here’s a quick breakdown of government contributions to an RESP:

Types of RESP Withdrawals


RESP funds come from three sources: your contributions, government benefits, and investment earnings. Consequently, there are three types of RESP withdrawals:


1. Educational Assistance Payments (EAP):

  • EAPs are the funds from government grants and accumulated earnings. These are taxable in the hands of the student.

2.Accumulated Income Payments (AIP):

  • AIPs consist of unused RESP earnings, paid to you if the funds aren’t used for education. These are taxable at your regular income tax rate plus an additional 20%.

3.Contribution Withdrawals:

  • As a subscriber, you can withdraw your contributions tax-free at any time, subject to the terms of your RESP plan.


RESP Withdrawal Rules

Before withdrawing funds from an RESP, here are some essential rules to keep in mind:


  • Eligible Post-Secondary Institutions: Ensure the beneficiary is enrolled in an eligible institution (universities, colleges, or other designated educational institutions in Canada or abroad).
  • Proof of Enrollment: You must provide official proof of enrollment to your RESP promoter, who may also require receipts for school-related purchases.
  • EAP Limits:
  • For full-time programs, the EAP withdrawal limit is $8,000 for the first 13 weeks.
  • For part-time programs, the limit is $4,000 per 13-week period.


What Happens If RESP Funds Go Unused?


If the beneficiary doesn’t pursue post-secondary education, here are your options:


  • Keep the RESP open in case they decide to attend school later.
  • Replace the beneficiary with another eligible person.
  • Transfer the funds to another RESP or a registered retirement savings plan (RRSP).
  • Close the RESP and withdraw the contributions (government grants will be returned to the government).


Are RESP Contributions Tax-Deductible?


No, RESP contributions are not tax-deductible. However, interest earned on your contributions remains tax-free as long as it stays in the RESP. Additionally, EAPs are taxed in the hands of the student, who usually has little to no taxable income during their studies.

If the RESP isn’t used for education, AIPs are taxed at the subscriber’s income tax rate plus 20%.


Over-Contributions and Penalties


It’s essential to note that the lifetime RESP contribution limit is $50,000 per beneficiary. If you exceed this limit, you’ll face a 1% tax penalty on the excess amount for each month it remains in the RESP.


By understanding the rules and benefits of RESP withdrawals, you can make the most of your savings and ensure your child’s educational journey is financially supported!


Key Takeaways

  • Anyone—parent, guardian, grandparent, other relatives, or friends—can open an RESP for a child. Adults can even open an RESP for themselves.
  • The government provides benefits such as the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), and provincial incentives in British Columbia and Québec.
  • No contributions are required to access the Canada Learning Bond (CLB).

Understanding the USA/Canada Tax Treaty

by Mark Virgil Lofranco • 9 December 2024
Are you a U.S. citizen living and working in Canada? Maybe you're a dual resident unsure of which tax rules to follow, or perhaps you cross the border daily to work for a Canadian company. Understanding the U.S./Canada Tax Treaty is essential for anyone earning cross-border income.  Filing taxes in just one country can be complex, and the U.S. tax system is one of the most complicated in the world. Figuring out taxes for both Canada and the U.S. can be challenging, but don’t worry, we’ve got answers. Here’s how your taxes work under the U.S./Canada tax agreement if you’re living or working in Canada and earning income.

9 Commonly Overlooked Tax Deductions for Startup Owners

by Mark Virgil Lofranco • 9 December 2024
Starting your own business is an exciting and rewarding journey, but with all the enthusiasm, some important financial details—like tax deductions—can be overlooked. As a new business owner, reducing your tax burden is crucial to maximizing profits, yet many Canadian small-business owners miss out on valuable tax deductions, paying up to 42% in taxes.  While you're likely familiar with common deductions like office supplies, meals, and wages, there are many lesser-known tax breaks that could save you money. Let’s dive into nine commonly missed tax deductions that could benefit your startup.

Essential Tax Credits and Grants Every Small-Business Owner Should Be Aware Of

by Mark Virgil Lofranco • 9 December 2024
Did you know that public funding could help kickstart your business? While many entrepreneurs are familiar with startup loans, fewer know about the wealth of public funding options available—specifically, tax credits and grants. These financial resources can be game changers for launching and growing your business.  This article will guide you through various tax credits, grants, and other public funding options that can support your small business.

How to Handle Toronto's Inherent Property Tax Increase: Tax Advice for First-Time Buyers

by Mark Virgil Lofranco • 9 December 2024
Buying your first home in Canada is an exciting milestone. However, potential and current homeowners in Toronto should be aware of a major change on the horizon: a proposed 10.5% increase in residential property taxes, the largest since 1998. This hike, driven by a nearly $1.8B budget shortfall, includes a 1.5% increase dedicated to city-building projects, such as transit and housing. Homeowners could face an extra $26.75 per month, or $321 annually, in property taxes. City officials have also warned that without federal funding, property taxes could rise even further, up to 16.5%.

A CRA Business Number (BN): What Is It and Who Needs One?

by Mark Virgil Lofranco • 9 December 2024
Congratulations! Whether you’ve just become self-employed or started a side gig to earn extra income, you're on an exciting journey. Amid all the hustle, you might have come across something called a Business Number (BN). But what exactly is it, and do you need one? Let’s dive in and explore everything you need to know about registering for a BN as a self-employed person or small business owner.

2023 Canada Tax Checklist: Essential Documents You Need to File Your Taxes

by Mark Virgil Lofranco • 9 December 2024
Picture this: tax season is approaching, and you’re frantically trying to gather the documents you need, worried you might miss something important. Sound familiar? That’s why having a tax checklist is essential. It helps you stay organized and ensures you have everything you need to file smoothly.  In this article, we’ll cover all the documents you need to have handy when filing your taxes!

2024 Tax Deadline: When Is the Last Day to File Your Taxes?

by Mark Virgil Lofranco • 9 December 2024
As a taxpayer, one of the most critical aspects to stay on top of is the deadline for filing your taxes. The Canada Revenue Agency (CRA) enforces strict due dates for both returns and payments. Filing on time not only helps you avoid interest and penalties but also ensures you get your refund faster. We’ve compiled all the key tax dates you need to know for a stress-free tax season.

NETFILE Opening in Canada: When You Can Start Filing Your Taxes

by Mark Virgil Lofranco • 9 December 2024
The way we file taxes has evolved dramatically over the past two decades, making it faster and more efficient to submit your returns. With tools like NETFILE, the Canada Revenue Agency (CRA) offers taxpayers a quick and secure method to file returns online. This article explains when to file your taxes, key deadlines, how NETFILE works, and why it’s a great option for fast-tracking your tax return.

Missed the Tax Deadline? Here’s Why It’s Not Too Late to File

by Mark Virgil Lofranco • 9 December 2024
If you missed the tax filing deadline and are feeling anxious, take a deep breath—it’s more common than you think, and it’s not too late to take action!  You can still file your tax return even after the deadline, and this article will walk you through the process to help you file confidently and minimize any potential penalties.

How to Claim the British Columbia Sales Tax Credit (BCSTC)

by Mark Virgil Lofranco • 27 November 2024
When you shop in British Columbia (BC), the price on the tag is rarely what you pay at the till because of the additional sales tax. However, for some low-income residents, there’s relief in the form of the BC Sales Tax Credit (BCSTC) , a refundable tax credit that offsets some of the provincial sales tax (PST) you pay. This credit is designed to help low-income taxpayers and families and can even result in a refund if you had no income. Let’s dive into how this tax credit works and how you can claim it.
More posts
Share by: