Your not-so-little ones are off to university or college! Tuition fees are steep and if your child is moving away for school, they’ll need money for residence or rent, food, and other living expenses. RESP withdrawals are a great way to cover these expenses, but the process of getting the money out is somewhat complicated.
When you make contributions, the amount of contributions you make for each beneficiary and the various grants like the Canada Education Savings Grant (CESG) or Canada Learning Bond (CLB) are tracked within the plan. These balances become especially important when you’re looking to make a withdrawal.
If you are looking to withdraw money from an RESP to pay for your child’s education, payments are split into 2 categories: Educational Assistance Payments (EAPs), and Withdrawals for Post-Secondary Education (PSE’s). The subscriber will have to make a request to their financial institution to withdraw a certain dollar amount from the RESP on behalf of the student. For this request to be processed you’ll need to provide proof of enrollment for the student. This proof is often achieved through a tuition invoice or a separate enrollment confirmation document provided by the school.
A Withdrawal for Post-Secondary Education is simply withdrawing from the original contributions you made into the plan. Let’s say you had an RESP for one child and contributed the $36,000 to get the full $7,200 grant. When you make a PSE withdrawal from the RESP, say $5,000, you are reducing the contribution balance of $36,000. You would now have a contribution balance of $31,000. PSE’s are tax-free. They can be paid to the student directly or paid to the subscriber. There are no rules around the amount of PSE’s you can withdraw in any given year.
The second category, Educational Assistance Payment, is withdrawn from the amounts in the RESP that come from the accumulated investment income earned in the account and the various incentives like the Canada Education Savings Grants, Canada Learning Bond, and provincial grants. This is to be requested on behalf of the student to cover educational expenses. In order to receive an EAP, the student must be enrolled in a qualifying educational program at a post-secondary educational institution. The financial institution that holds the RESP will request proof of enrollment. A student can request an EAP up to six months after ceasing to be enrolled in a qualifying program. The amount paid to the student as an EAP is taxable in the student’s hands. They will receive a T4A slip come tax time.
There are certain limits pertaining to Educational Assistance Payments (EAPs). The first limit relates to a full-time student’s first 13 weeks. The student can only receive $5,000 in EAPs for the first 13 weeks of a program. If the student needs more than $5,000 for their first semester, they can take the remainder from the contribution portion of the RESP or make a written request to the Minister of ESDC (Employment and Social Development Canada) and hope they approve it. After the first 13 weeks have passed, you can request larger amounts of EAPs. If there is a 12-month period where the student is not enrolled in a qualifying educational program for 13 consecutive weeks, the clock starts again, and the $5,000 limit will apply. For part-time students, the rules are a bit more complex.
The EAP request doesn’t have to only cover tuition; it can be used for textbooks, rent, food, and other living expenses. Perhaps the student lives at home to save housing costs but needs a vehicle and extra cash to pay for parking. Withdrawals from the RESP can cover that. Your financial institution and ESDC won’t ask for specific receipts as long as your request is within the annual limits. For 2019, that annual limit was $23,976. Therefore, if the child is eligible for an EAP and the request is within this limit, your financial institution will not have to look at your actual expenses to determine the reasonableness of the request. If you need more than this amount in a given year, you can withdraw from the contribution portion of the RESP, as there are no withdrawal limits for that portion. You could also make a request to the Minister of ESDC and see if they approve it.
The final limit is that a student cannot be paid out more than $7,200 in grants from the RESP during their lifetime. For family plans, the basic CESG, additional CESG, SAGES, and BCTESG can be shared with siblings. The Basic CESG and SAGES can also be shared amongst cousins. The Canada Learning Bond cannot be shared. For group plans, incentives (like grants) and investment earnings cannot be shared.
| Family plans | Group plans | ||
| Incentive | Share incentive? | Share earnings? | Share incentive and earnings? |
| Basic CESG | Yes, with cousins or siblings | No | |
| Additional CESG | Yes, with siblings only | No | |
| CLB | No | Yes, with siblings only | No |
| SAGES | Yes, with siblings or cousins* | No | |
| BCTESG | Yes, with siblings only | No | |
Let’s say you have two beneficiaries that are siblings in a family plan, Alex and Brenda. When Alex’s parents contributed to the RESP, he received $5,000 in grants from the government by the time he turned 18. Brenda received the full $7,200 in CESG’s since she was younger when their parents started contributing. Therefore, there is a total of $12,200 in grants that can be shared between Alex and Brenda. When withdrawing from the RESP, Alex could receive up to $7,200 in CESG, even though he only earned $5,000. If he received $8,000 in grants, he would owe the government the difference between what he was paid and the maximum $7,200, or $800. On the flip side, let’s say Alex received only $3,000 total grants throughout his schooling based on how the withdrawals were requested. If he’s already done school, that means that if Brenda depletes the RESP, she’ll owe $2,000 to the government. This is because she received the remaining $9,200 in grants from the RESP, more than the maximum limit of $7,200. This highlights the fact that with family RESP’s, beneficiaries or subscribers need to keep track of the withdrawals to ensure beneficiaries don’t receive more than $7,200 in grants. If they do as a result of sharing the grants between siblings or cousins, the beneficiary will be required to repay the excess to the government. This becomes even more important and tedious when there are multiple RESP’s set up for a student.
