Example – How AIPs are taxed

Example

The RESP under which Mary is an original subscriber allows AIPs. In July 2019, Mary received an AIP of $16,000. She filled out Form T1171 to have $14,000 transferred directly by the promoter to her RRSP. Mary’s RRSP deduction limit for 2019 is $14,000. She did not make any other RRSP contributions during the year. She was a resident of Manitoba on December 31.

Mary fills out Form T1172, Additional Tax on Accumulated Income Payments from RESPs, to determine the amount of additional tax she has to pay for 2019 as follows:

Step 1: Calculate amount subject to the additional tax:
AIP for 2019 ($16,000) − Amount Mary deducts for 2019 for RRSP contributions from an AIP ($14,000) = Amount subject to the additional tax ($2,000)

Step 2: Calculate additional tax payable:
Amount subject to the additional tax ($2,000) × Rate (20%) = Additional tax payable ($400)

Mary reports the AIP of $16,000 on line 13000 and the additional tax on line 41800 of her 2019 Income Tax and Benefit Return. She also claims the RRSP deduction of $14,000 on line 20800 and attaches a copy of Form T1172 to her Income Tax and Benefit Return.

If Mary had received the amount in January 2019 and transferred it to an RRSP (provided her RRSP deduction limit was sufficient) she could have decided to claim all or part of the deduction for the 2018 tax year. This would have been possible because the amount would have been transferred in the first 60 days of 2019.

However, had she done so, she would not have been allowed to reduce the additional tax because the amount transferred to her RRSP has to be deducted on the Income Tax and Benefit Return for the year in which the amount is received.

That is, on her 2019 Income Tax and Benefit Return, Mary would determine the additional tax payable based on the full $16,000 of the AIP. The additional tax is $3,200 ($16,000 × 20%).

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