Chapter 11. Registered Education Savings Plan provider user guide – Options for assets remaining in the Registered Education Savings Plan

On this page

• List of acronyms
• Introduction
• 11.1. When assets remain in the RESP
• 11.2. Distributing earnings if closing the RESP
• 11.3. Accumulated income payments
• 11.4. Rollover of the AIP from an RESP to an RDSP
• 11.5. Transfer of the AIP from an RESP to an RRSP
• 11.6. Payments to a designated educational institution
• 11.7. Forfeited CESG and earnings on the CESG in group plans

Introduction

An educational assistance payment (EAP) is a payment from a Registered Education Savings Plan (RESP) to help an eligible beneficiary cover expenses associated with post‑secondary education.

An EAP consists of educational incentive amounts paid into an RESP and the accumulated income. The education savings incentives administered by Employment and Social Development Canada (ESDC) include:

• Canada Education Savings Grant (CESG)
• Canada Learning Bond (CLB)
• British Columbia Training and Education Savings Grant (BCTESG)

Under certain circumstances, subscribers may need to make decisions about handling assets that may remain in the RESP after the beneficiary has:

• completed their education, or
• if the beneficiary chooses not to attend, or
• complete post‑secondary education

This chapter helps the RESP promoter in describing options available to the subscriber for handling the RESP assets including earnings that may remain in the plan.

For more information, refer to Appendix C for a list of acronyms and terms used in this guide.

11.1. When assets remain in the RESP

If the beneficiary has completed post‑secondary education, or has decided not to attend or complete post‑secondary education, the plan may still hold contributions, earnings, and perhaps even the incentives paid into the plan by ESDC.

The RESP promoter can help the subscriber in choosing the most appropriate option for handling these remaining amounts, based on the subscriber's circumstances.

Certain options may affect the incentives in the plan and result in the obligation to repay the CESG, the CLB and the BCTESG. Refer to the information about repaying the incentives in the following related chapters:

• Chapter 5. The Canada Education Savings Grant
• Chapter 6. The Canada Learning Bond
• Chapter 7. British Columbia Training and Education Savings Grant

11.1.1. Options for handling assets remaining in the RESP

The subscriber may choose 1 of the following options for distributing the assets that may remain in the RESP:

• leave the money in the RESP until the subscriber closes the plan

The subscriber must close the RESP by the end of the 35th year (40th year in the case of a specified plan) after the year the subscriber opened the plan.

• replace the beneficiary if permitted under the terms and conditions of the plan

The replacement beneficiary must meet the sibling only requirement associated with the Additional CESG, the CLB and the BCTESG. If the replacement beneficiary is not a sibling of the other RESP beneficiaries, the promoter as agent of the trustee must repay these incentives.

• transfer the assets to another RESP if permitted under the terms and conditions of the plan

The transfer of incentives must follow conditions stipulated by:

• the Income Tax Act (ITA)
• the Canada Education Savings Regulations
• provincial regulations, and
• agreements with the Government of British Columbia (about the BCTESG)
  
  Failure to follow these conditions may require the repayment of incentives. For more information, refer to Chapter 9. Registered Education Savings Plan transfers and the education savings incentives
• close the plan and select the desired option for distributing the earnings

When the subscriber closes the plan, the promoter as agent of the trustee repays the incentives to ESDC, returns the contributions to the subscriber and offers assistance for choosing the best option for the earnings.

11.2. Distributing earnings if closing the RESP

Once the subscriber decides to close an RESP (whether by choice or because the plan has reached the end of its term), the subscriber has the following options for distributing any earnings that may remain in the RESP:

• request an accumulated income payment (AIP) from the RESP
• request a rollover of the AIP from an RESP to a registered disability savings plan (RDSP)
• request a transfer of the AIP from an RESP to a registered retirement savings plan (RRSP)
• request a payment to a designated educational institution in Canada

Contributions to RESPs are not deductible from the subscriber’s income. The promoter can return the contributions to the subscriber at any time without tax consequences, according to the terms of the RESP contract.

Regardless of the option selected, the promoter as agent of the trustee must repay any incentives remaining in the RESP. For more information about repaying the CESG, the CLB or the BCTESG, refer to the following appropriate chapters:

• Chapter 5. The Canada Education Savings Grant
• Chapter 6. The Canada Learning Bond
• Chapter 7. British Columbia Training and Education Savings Grant

11.3. Accumulated income payments

An AIP is a distribution of earnings from the RESP made to the subscriber. The AIP may include earnings on contributions and incentives, but it excludes the contributions and incentives.

The promoter must make an AIP to or for a single subscriber at a time for income tax purposes. For example, the promoter cannot make an AIP to a husband and wife as a single joint payment. However, the promoter could make separate AIPs from the same RESP to a subscriber and to a joint subscriber.

An AIP is not:

• a repayment of contributions to the subscriber
• an EAP made to the beneficiary
• a repayment of the CESG, the CLB or the BCTESG
• a payment to a designated educational institution in Canada
• a transfer to another eligible RESP

AIPs are taxable. For more information about related tax implications:

• consult the guide RC4092

11.3.1. Conditions for an AIP

The promoter may make an AIP if:

• the subscriber is a resident of Canada, and
• the promoter makes a payment to 1 subscriber of the plan, and
• the plan has been open for 10 years and each individual who is or was a beneficiary is over 21 years of age and not eligible for an EAP

Or:

• the plan is being closed by the end of the 35th year (40th year in the case of a specified plan) after the year the plan was opened

Or:

• all beneficiaries have died

Canada Revenue Agency (CRA) may waive the conditions requiring that the plan exist for 10 years, and that each beneficiary be at least 21 years of age and ineligible to receive an EAP. For more information, contact the Registered Plans Directorate, CRA at 1-800-267-3100.

11.3.2. When the promoter makes an AIP from an RESP

When the promoter makes an AIP from the RESP, the promoter must:

• repay contributions to the subscriber without tax implications
• as agent of the trustee repay the remaining of the CESG, the CLB and the BCTESG
• close the RESP by the end of February of the year after the year in which the first AIP is paid

Promoters usually have to withhold regular and additional taxes on AIPs. For more information about related tax implications, consult the guide RC4092.

11.3.2.1. The promoter must repay the remaining incentives in the RESP

If the promoter made an AIP from an RESP, the promoter as agent of the trustee must repay the remaining CESG, CLB and BCTESG.

The promoter must repay the lesser of the following 2 amounts:

• the balance in the CESG, CLB and BCTESG account(s) at the time of the AIP, or
• the amount determined by the formula

11.3.2.2. The promoter must close the RESP

When the promoter makes an AIP from an RESP, the promoter must close the RESP by the last day of February following the year in which the first AIP is made.

11.4. Rollover of the AIP from an RESP to an RDSP

To provide greater flexibility to beneficiaries with disabilities, it may be possible to roll over the AIP from an RESP into an RDSP without incurring taxes, if certain conditions are met.

The subscriber of an RESP and the holder of an RDSP may agree to rollover the AIP amount from the RESP to the RDSP if, at the time of the rollover, the beneficiary of the RESP is also the beneficiary of the RDSP.

11.4.1. RESP – RDSP rollover conditions

The following conditions determine if a rollover of AIP from an RESP to an RDSP is permitted:

• both RESP and RDSP are established for the same beneficiary
• both RESP and RDSP specimen plans must be approved by the Registered Plans Directorate, CRA:
  • the RDSP specimen plan must allow RESP rollovers
  • the RESP specimen plan must allow AIPs and follow the Income Tax Act, paragraph 146.1 (2) (i.1)

11.4.1.1. RDSP conditions

The financial institution administering the RDSP can accept an education savings rollover if the beneficiary is:

• eligible for the disability tax credit (DTC)
• 59 years of age or less at the end of the calendar year
• a resident in Canada

The rollover amount cannot exceed the lifetime contribution limit of $200,000 to the RDSP.

11.4.1.2. RESP conditions

One of the following 3 conditions determines if a rollover of AIP from an RESP to an RDSP is permitted:

• the beneficiary has a severe and prolonged mental impairment that can reasonably be expected to prevent them from pursuing post‑secondary education, or
• the RESP has been in existence for at least 10 years and all the beneficiaries in the RESP are at least 21 years of age and are not pursuing post‑secondary education, or
• the RESP has been in existence for at least 35 years

The promoter must close the RESP by the end of February of the year following the calendar year in which the rollover is made.

11.4.2. Rollover from a family RESP

When the rollover of an AIP from an RESP is from a family plan, 3 options are available.

11.4.2.1. Option 1 – Partial transfer

One of the conditions for the rollover described in section 11.4.1. RESP – RDSP rollover conditions of this chapter is that both the RESP and the RDSP must be established for the same beneficiary.

There may be situations where a DTC eligible beneficiary is named to a family RESP that is shared with other beneficiaries. The family plan with multiple beneficiaries can be split into one or more individual (non-family) plans.

First, the subscriber must establish a separate RESP for the DTC eligible beneficiary. The subscriber can then make a partial transfer of funds from the family RESP to the new RESP.

The original family RESP can remain open. This will allow the subscriber to leave any remaining education savings incentive amounts and accumulated income in the family RESP. These amounts can remain available for the other beneficiaries.

Once the partial transfer is complete from the family RESP to the new RESP, providing that all the conditions outlined under section 11.4. Rollover of the AIP from an RESP to an RDSP in this chapter are met, the RESP subscriber may then request to have the AIP from the new RESP to be rolled over to the RDSP.

Once the rollover to the RDSP is complete, the promoter must close the new RESP (refer to all the requirements outlined under section 11.4. Rollover of the AIP from an RESP to an RDSP of this chapter).

For more information on transferring funds from one RESP to another or on how to close an RESP, please consult the RESP provider user guide.

11.4.2.2. Option 2 – Waiting

After the beneficiaries have completed their education or if the beneficiaries choose not to attend or complete post‑secondary education, the promoter must:

• repay all education savings incentive remaining in the family RESP
• close the plan by the end of February of the year after the rollover of the AIP amount from the RESP to the RDSP

11.4.2.3. Option 3 – Closing the family RESP

The subscriber may close the family RESP at any time.

However, the promoter must close the RESP before the end of the 35th year following the year in which it was opened. If all the conditions set out in the section 11.4. Rollover of the AIP from an RESP to an RDSP in this chapter are met, the subscriber can request a rollover of the AIP from the family RESP to the beneficiary’s RDSP.

However, any education savings incentives remaining in the family RESP (including amounts paid in other beneficiaries’ names) must be repaid.

11.4.3. Specimen plan

The RESP promoter must specify in their specimen plan if AIPs are allowed.

The RDSP issuer must specify in their specimen plan if rollovers of AIPs into an RDSP are permitted.

All specimen plans must be approved by the Registered Plans Directorate of the CRA.

11.4.4. Rollover form

The RDSP holder and RESP subscriber may use the CRA form number RC435 (rollover from an RESP to an RDSP) to record rollover amount information.

RDSP issuers and RESP promoters may also choose to produce and use their method of documentation for this transaction, as long as the information prescribed on the CRA rollover form is included.

The RDSP issuer and RESP promoter must keep this form and any relevant documentation as a record of the rollover transaction. A separate form must be completed for each rollover transaction.

You may download the form from the CRA website:

• RC435 Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan

11.4.5. Roles and responsibilities

The RESP subscriber and the RDSP holder:

• contacts the RESP promoter or the RDSP issuer and requests a rollover
• completes and signs a rollover form with the RESP promoter or the RDSP holder, and
• confirms and authorizes the amount of AIP to be rolled over into the RDSP

The RESP promoter:

• confirms that the eligibility requirements to process the rollover are met
• completes the rollover form with the RESP subscriber
• signs the form to confirm payment of the AIP from the RESP to the RDSP
• submits a repayment transaction (record type "400", transaction type "21") – Repayment reason code 02-AIP to the Canada Education Savings Program (CESP) system
• terminates the RESP by the end of February of the year following the calendar year in which the rollover is made, and
• keeps the rollover form and any relevant supporting documentation on file

The RDSP issuer:

• confirms that the eligibility requirements to process the rollover are met
• completes the rollover form with the RDSP holder
• signs the form to confirm that they have received the funds
• submits a 401-30 transaction (education savings rollover) to the Canada Disability Savings Program (CDSP) system, and
• keeps the rollover form and any relevant supporting documentation on file

11.5. Transfer of the AIP from an RESP to an RRSP

Promoters usually have to withhold regular and additional taxes on AIPs.

However, they do not have to withhold tax if both of the following apply:

• AIPs are transferred directly to your registered retirement savings plan (RRSP), pooled registered pension plan (PRPP), or specified pension plan (SPP) or your spouse’s or common law partner’s RRSP or SPP your RRSP deduction limit allows you to deduct the contribution in the year it is made

For more information about the transfer of an AIP:

• contact the CRA Registered Plans Directorate at 1-800-267-3100
• visit CRA’s website

11.6. Payments to a designated educational institution

The terms of an RESP can stipulate that, under the following circumstances, the promoter could pay the earnings remaining in the RESP to a designated educational institution in Canada:

• the beneficiary is no longer eligible for an EAP
• the promoter repaid the incentive(s), as required
• the subscriber does not qualify for an AIP

For more information, refer to 11.3.1. Conditions for an AIP earlier in this chapter.

A payment to a Canadian designated educational institution would be a gift and not a donation. Therefore, the promoter will not issue a tax receipt to the subscriber or to the beneficiary.

The promoter must repay any incentives remaining in the RESP to the Government of Canada before making the payment to the educational institution.

11.7. Forfeited CESG and earnings on the CESG in group plans

The Canada Education Savings Act and Canada Education Savings Regulations stipulate:

"CESG amounts and the earnings generated on them may only be shared among the beneficiaries of the RESP."

The term "RESP" used in section 18(1) of the Regulations refers only to the individual contract itself and not the group RESPs under the same specimen plan.

As a result, forfeited CESG and forfeited earnings on the CESG can no longer be redistributed among group RESP cohorts after July 1, 2005.

While any forfeited CESG amounts must be repaid to Government of Canada, forfeited earnings can be managed in 1 of these 2 ways:

• an AIP
• a payment to a designated educational institution

These options are outlined in more detail within this chapter.