OB Report
September 2019
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Spending RESPs

HeatherBy Heather Rivers, BA, CFP®, FMA
Communications and Education Specialist, Odlum Brown Financial Services Limited

obfsl image 310pxAs the school year begins, many families with children or grandchildren obtaining a post-secondary education may have questions about how and when to access Registered Education Savings Plan (RESP) funds.

Since RESP withdrawal rules are complex, here are a few quick reminders:

  • Unless approved as an Education Assistance Payment (EAP) or as a Post-Secondary Education Payment (PSE), an RESP withdrawal may trigger repayment of grants or bonds to the government.
  • Before requesting an RESP withdrawal, subscribers should have proof of the student’s enrollment in a qualifying education program.1
  • Clients with Odlum Brown RESPs can usually request whether they prefer to receive an EAP, PSE or a blended payment from both portions of a child’s RESP, when making RESP withdrawals.

The table below briefly compares EAPs and PSEs:
OBFSL Chart 688

What costs are eligible for EAPs?

Education Assistance Payments can be used for “reasonable costs” while enrolled in a qualifying education program, which may include:

  • tuition;
  • books;
  • accommodation; and
  • some transportation and general living expenses.

Tips:

EAPs are taxable as part of the student’s income. A student may pay little to no tax on an EAP, depending on their other taxable income, tax credits and deductions. PSEs are non-taxable and can therefore be withdrawn without impacting income tax.

While personalized advice is necessary to properly assess all individual factors, some families may prefer to withdraw taxable EAPs initially to reduce the risk of repaying grants and bonds to the government later if any unused funds remain in the RESP after the plan beneficiary(ies) end enrollment in an eligible post-secondary program. For example, families with children who receive generous scholarships or who might discontinue their studies may find this sequence of withdrawals attractive. A subscriber’s contributions to an RESP can still be withdrawn, tax-free, after all EAPs are withdrawn, even if no beneficiary is enrolled in an eligible program.

For additional student tax tips, visit getsmarteraboutmoney.ca.3

There are also several budgeting tools available from the Government of Canada to help students plan responsibly, including “Budgeting for Student Life”4 and the “Student Budget Worksheet.”5

For more information about RESPs, please contact your Odlum Brown Investment Advisor or Portfolio Manager.


1 A qualifying education program can be at a designated institution in Canada, or outside of Canada at a university, college or other educational institution providing courses at a post-secondary level. For Canadian programs, a minimum of 10 hours per week of instruction or work per week is required for full-time programs, or at least 12 hours per month if part-time.

2 This limit reapplies if the student does not re-enroll for 12 months.

3 getsmarteraboutmoney.ca/plan-manage/planning-basics/understanding-tax/students-and-tax/

4 canada.ca/en/financial-consumer-agency/services/budget-student-life.html

5 canada.ca/en/financial-consumer-agency/services/budget-student-life/student-budget-worksheet.html

Odlum Brown Financial Services Limited is a wholly owned subsidiary of Odlum Brown Limited offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients.