RESP

TERMINATING AN RESP – What to do with Earnings

Accumulated Income Payments (AIPs)

An Accumulated Income Payment (AIP) is a distribution of earnings from the RESP to the subscriber. Earnings may include investment growth on contributions and grants but does not include contributions or grants. For joint subscribers, only one subscriber at a time may receive AIP payments for income tax purposes. The plan must be terminated by the last day of February in the year following the year in which the first AIP is made. Any grants remaining in the account at the time of the AIP must be repaid.

Conditions for an AIP: An RESP may allow for an AIP when all of the following conditions have been met:

  • The subscriber is a resident of Canada.

    AND

  • The payment is made to one subscriber of the plan.

    AND

  • The plan has been open for 10 years and each individual beneficiary is over 21 years of age and not eligible for an Educational Assistance Payment (EAP).

    OR

  • The plan is being closed after 35 years.

    OR

  • All beneficiaries are deceased.

When terminating an RESP a subscriber has 3 options available for distributing any remaining earnings:

  1. Withdrawal – Redeeming the earnings
  2. Transfer RESP earnings to an RRSP
  3. Charitable donation to a designated educational institution in Canada

Regardless of the option selected, grant remaining at the time of termination must be repaid to HRSDC.

Click here if you would like to refer to the Terminating an RESP chart.

Withdrawal - Redeeming the Earnings

Subscribers are able to redeem the earnings as an AIP redemption on a RESP plan.

Forms required:

A letter of direction signed by the subscriber(s) stating that the beneficiary(ies) has no intention of pursuing further studies.

Tax Implications:

AIP withdrawals are subject to two different taxes: regular income tax and an additional 20% marginal tax. In Quebec, the 20% tax is divided as follows: 12% to Canada Revenue Agency and 8% to Revenue Quebec.

Transferring RESP earnings to an RRSP

This option is only available to the original subscriber. The earnings can be rolled over to the subscriber’s RRSP or over to their spouse’s RRSP.

Forms required:

  • A letter of direction signed by the subscriber(s) stating that the beneficiary (ies) has no intention of pursuing post-secondary studies
  • Revenue Canada form T1171
  • RRSP application if a new plan is to be opened


Tax Implications:

T4A /Relevé 1 will be released from the RESP account and offsetting Contribution Receipt is released from the RRSP account.

Charitable Donation to a Designated Educational Institution in Canada

RESP earnings can be donated to an educational institution in Canada. (The donation is not eligible for a tax receipt).

Forms required:

A letter of direction signed by the subscriber stating that the beneficiary(ies) has no intention of pursuing further studies and indicating where to send the proceeds.

Tax implications:

No tax receipt will be issued as this is considered a gift and not a donation.