You can withdraw funds from an heritage education funds RESP through Accumulated Income Payments (AIP) if the beneficiary decides not to pursue post-secondary education.
In order to avail AIPs, the following conditions must be met:
– The payment is made after the year that includes the 9 th anniversary of the RESP, each beneficiary is at least 21 years old, and the person is not currently receiving an Educational
assistance Payment (EAP);
– The payment is made when the REPS has been open for 35 years, unless the account is a specified plan (in which case the payment will be made after the year that includes the 40 th
anniversary of the plan); or
– All of the beneficiaries are deceased at the time of the payment.
You must bear in mind, however, that not all RESPs offer AIPs. Also, the first condition may not apply if the beneficiary under the RESP is not able to pursue post-secondary education because of a serious and prolonged mental impairment.
AIPs do NOT include:
– The funds from educational assistance payments (EAPs);
– Payments to an educational institution in Canada;
– The refund of contributions to the subscriber or the student/beneficiary;
– Repayments from the Canada Education Savings Act or under a designation provincial program;
– Transfers to another RESP.
An AIP is subject to two taxes:
1) Regular income tax
2) An additional tax of 20%, or 12% for Quebec residents
Keep in mind that your contributions to the heritage RESP are not subject to tax, but the interest and investment gains are.
The promoters report the AIPs in box 040 of T4A, Statement of Pension, Retirement, Annuity, and Other Income. You’ll get a copy. You have to include this as income on line 130 of your income tax and benefit return within the year you received it.
Then, you can calculate the second tax using Form T1172, Additional Tax on Accumulated Income Payments From RESPs. You must include a filled out copy of Form T1172 with your income tax and
benefit return for the year you got the AIP.
Important note: You must pay the additional tax by the balance due date for your regular tax, typically falling on April 30 of the year that follows the year when you got the AIP.
Lowering AIPs Subject to Taxes
You can lower the amount of AIPs subject to tax up to a lifetime maximum of $50,000 if:
– You are the original subscriber
– You acquired the former subscriber’s rights through marriage or breakdown
– (when there’s no subscriber of the plan) You are the husband/wife or a common-law of a deceased subscriber
You also have to meet BOTH of these conditions:
– You’re paying the amount to your (or your spouse’s or common-law partner’s)registered retirement savings plan (RRSP), specified pension plan (SPP), or pooled registered pension plan
(PRPP) in the year you go the AIPs or the first 60 days of the following years; and
– Your RRSP deduction limit lets you take the amount contributed to your (or your spouse’s or common-law partner’s) RRSP, PRPP, or SPP on line 208 of your income tax and benefit return.
Then, claim the deduction for the year when any payments are made.
NOTE: You cannot lower the AIPs subject to tax if you’ve become the subscriber under the heritage RESP after the death of the original subscriber.