Sign Up


Termination of an RESP Account 

In some cases you may need to terminate your RESP account (for instance, your child does not go on to pursue post-secondary education after high school, or the RESP is approaching its maturity date).

 

 

If you decide to close your account, then you need to understand the rules governing terminating RESPs.  

Note: An RESP account can stay in place for up to 36 years, from the RESP opening date. This gives you the flexibility to keep the account open and the accumulated savings available if your child decides to go back to school later in life.

Upon termination of the RESP account (assuming the absence of a student beneficiary), the assets of the RESP will be administered according to one or a combination of the following options:

  • a transfer to another RESP account
  • a Refund of Contributions
  • a refund of all unused Canada Education Savings Grants (CESG), Canada Learning Bond (CLB), and provincial grant monies back to the originating government agency
  • a payment of Accumulated Earned Income (AEI), including:
    • making an Accumulated Income Payment (AIP) to the Subscriber
    • transferring the AEI into the subscriber’s RRSP
    • paying the AEI to a designated educational institution

Note: For more information regarding transfers to another RESP account, refer to our section RESP Transfers.

At the time of the RESP Plan’s termination, the RESP property will be comprised of three distinct components:

  • Subscriber contributions:  A refund of the subscriber’s contributions can be made at any time and the refund can be paid either to the subscriber or the RESP beneficiary. Because the Refund of Contributions is a return of funds that had been taxed previously there is no withholding tax deducted and the refund is not included in the recipient’s taxable income.
  • Government grant monies:  At the same time that a Refund of Contributions is made, all government grant monies, originally accompanying the refunded contribution, must be returned to the originating government agency.
  • Accumulated Earned Income (AEI): The RESP account’s AEI can be dealt with in any combination of the following:
    • paid to the subscriber as a taxable Accumulated Income Payment (AIP)
    • transfer this AIP into the subscriber’s RRSP account, provided the subscriber has sufficient RRSP contribution room available, or
    • direct that the AIP be paid, tax-free, to a designated educational institution

Note: Upon termination, each component is dealt with separately. This separate treatment is to maintain income taxation continuity.

RESP Accumulated Income Payment (AEI) transfers 

The various options of dealing with an RESP AEI (as listed above) are outlined in more detail in the following sections.

RESP AEI transfer to subscriber

If the accumulated earned RESP income is paid to the subscriber, then the payment must be included in the subscriber’s taxable income for the year of receipt. The financial institution administering the RESP account will report the AIP payment by issuing a T4A-Statement of Pension, Retirement, Annuity and Other Income slip.

Before an AIP payment can be made from an RESP any one of the following conditions must be satisfied:

  • The AIP payment can only be made after the ninth anniversary of the RESP.
  • Each individual beneficiary of the RESP account is 21 years of age or older and is not currently eligible to receive an Education Assistance Payment (EAP).
  • The AIP payment is made because the RESP account has reached its maturity date (typically, the year after the account reaches its 35th anniversary); or
  • All of the RESP beneficiaries are deceased.

Note: The Canada Revenue Agency (CRA) may waive the first two conditions if it is reasonable to expect that the beneficiary is not able to pursue post-secondary education due to prolonged, severe mental impairment.

As mentioned, AIP payments are fully taxable in the subscriber’s hands. As such, AIP payments are subject to two different taxes. The first is the regular income tax as dictated by the subscriber’s level of taxable income. The second tax is assessed on the AIP payment at the rate of 20% (12% for residents of Quebec).

At the time of the AIP payment, the RESP promoter/provider is required to deduct and remit both the regular and additional income tax. The withholding tax will also be reported on the subscriber’s T4A information slip.

The RESP promoter/provider is not required to deduct taxes on the portion of the AIP payment that is transferred directly to your or your spouse’s RRSP account and your unused RRSP contribution room allows you to deduct the contribution in the year it was made.

Subscribers calculate the income tax to be paid on AIP payments by completing form T1172-Additional Tax on AIPs from RESPs.

The AIP cannot be made payable to joint subscribers. The AIP must be allocated and paid to one individual subscriber. And an RESP account must be wound up and closed by the end of February of the year after an AIP is paid.

RESP AEI transfer to RRSP

If a subscriber has unused RRSP contribution room available, they can complete CRA form T1171 to request the RESP promoter/provider transfer all or a portion of the AIP payment directly into their RRSP account. The only restriction on the amount that can be transferred into an RRSP is that the AIP payment to be transferred cannot be greater than $50,000.00. If the subscriber does not have unused RRSP contribution room, then this is not an option available to the subscriber.

A transfer of AIP into an RRSP will defer income tax on the transferred AIP payment until such time as the funds are withdrawn from the receiving RRSP account.

RESP AEI transfer to a designated educational institution

The final option for the AIP payment would be for the subscriber to direct that the AIP be paid to a Canadian designated educational institution. In general, the RESP account documentation should provide that, if an amount is left in the RESP account and the conditions for an Education Assistance Payment (EAP) or AIP are not met, then the RESP remainder can be paid to a designated educational institution or a trust for the institution.

In addition if your RESP account is terminated prior to the plan’s ninth anniversary, then you are not entitled to receive any of the AEI. As a result, the AEI must be paid directly to a Canadian designated educational institution.

Note: Payments of AEI to a designated education institution are not taxable to a subscriber.

 

Back To Top

Quick Navigation



  1. How to Get Started:

    Classroom:

  2. Videos:

    Financial Planning & Budget:

  3. Tools & Calculators:

    Other Resources: