RESPs and Educational Assistance Payments (EAPs): A Clearer Picture

Registered education savings plans (RESPs) are the best way of planning financially for your children’s future. The RESP is a very attractive investment vehicle: you can save money tax-free and get government grants that encourage parents to invest in their children’s post-secondary education.

RESP withdrawals and EAPs: What does it all mean?

First, let’s talk about what educational assistance payments (EAPs) are. They consist of the government grants and investment income accumulated over the years in your RESP. In other words, there are two types of funds in your RESP:

• Capital
  The capital (also known as “savings”) is the sum of all contributions and belongs to the subscriber. It is non-taxable and may be withdrawn in whole or in part at any time. When left to grow, the capital generates investment income over time, even during the time withdrawals are being made from the RESP. If the beneficiary chooses not to pursue post-secondary studies, the subscriber may recover all or part of the capital, but the government grants will have to be repaid to the governments.
• Educational assistance payments (EAPs)
  EAPs belong to the beneficiary, provided he or she is enrolled in an eligible post-secondary program. The EAP amounts are added to the beneficiary’s income and must be reported in his or her annual income tax return. This is why it may be advantageous to spread the withdrawals over several tax years.

The subscriber has to submit an application to withdraw funds from the RESP. It’s also up to the subscriber to decide what types of funds are withdrawn: EAPs only or a combination of EAPs and capital. Keep in mind that, if your situation permits, it may be beneficial for the management of your personal finances and your savings to keep the capital in your RESP, as it will continue to generate income as long as the account is kept open.

EAP eligibility requirements

To access educational assistance payments, the beneficiary (student) must be enrolled in a qualifying educational program or a specified educational program:

• Qualifying educational programs are full-time post-secondary educational programs with a minimum duration of three consecutive weeks requiring at least 10 hours of instruction or schoolwork each week.
• Specified educational programs are part-time post-secondary programs with a minimum duration of three consecutive weeks requiring the student to spend at least 12 hours per month on courses in the program.

To make sure that the educational institution in which your child is enrolled or wishes to enrol is eligible for EAPs, see the Government of Canada’s list of designated educational institutions. As the subscriber, you will be required to provide proof of registration to your RESP provider, which will submit the withdrawal application on your behalf. The beneficiary may receive EAPs for up to six months following the end of his or her enrolment in the program.

Are there any restrictions on withdrawing EAPs?

Depending on the post-secondary program selected, the beneficiary will have some restrictions on EAP withdrawals. For a full-time program, a withdrawal of up to $8,000 is permitted during the first 13 weeks of the program. After the first 13 weeks, there is no limit on the amounts you can withdraw.^*

For a specified educational program, which means it is part-time, a withdrawal of up to $4,000 is allowed for the 13 weeks of the program, but the withdrawal must be made at the end of the 13 weeks, not before. 

In special cases where the expenses for the first 13 weeks of study or the registration fees are higher than average and would exceed the $8,000 or $4,000 limit, Employment and Social Development Canada may authorize a larger EAP withdrawal. In such cases, the RESP provider must submit a special application to the Canada Education Savings Program, and certain conditions will apply, depending on the specific circumstances of the beneficiary and his or her education program.

How should you use EAPs?

When the beneficiary starts his or her post-secondary program, the subscriber can begin making withdrawals from the RESP, and the beneficiary can use the funds for all education-related expenses. That includes not just tuition and school supplies but also housing, transportation, food and other expenses.

EAPs are used to fund the beneficiary’s post-secondary education. If withdrawals are made for a different purpose, the amounts withdrawn are treated as accumulated income payments (AIPs) and will be taxed accordingly. AIPs are subject to regular income tax rules and to the additional 12% tax for residents of Quebec.