A July 21, 2021 Money Sense article (My
three kids chose different educational paths.
How do I withdraw RESP funds in a way
that’s fair to them and avoids unnecessary
taxes?, Allan Norman) considered some
possibilities and strategies to discuss
when withdrawing funds from a single
RESP when children have different
financial needs for their education. Some
of the key points included the following:

• There is likely a minimum educational
assistance payment (EAP)
withdrawal that should be taken, even
by the child that needs it least.
• The EAP includes government grants (up to $7,200)
and accumulated investment earnings on both the grants
and taxpayer contributions.
• The grants can be shared, but only up to $7,200 can be
received per child, with unused amounts required to be
returned to the government.
• Only $5,000 in EAPs can be withdrawn in the first 13
weeks of consecutive enrollment.
• The withdrawal amount is not restricted by school
costs.
• The children are taxed on EAP withdrawals.
• It is generally best to start withdrawing the EAP
amounts as early in the child’s enrollment as possible,
when the child’s taxable income is lowest. If the child is
expected to experience lower income in later years, there
is flexibility to withdraw EAP amounts in those later years
instead.
• The level of EAP withdrawn for each child can be
adjusted. As individuals are taxed on the EAP
withdrawals, planning should consider the children’s other
expected income (e.g. targeting less EAPs for years in which they will be working, perhaps due to co-op programs or graduation). Consider having the EAP completely
withdrawn before the year of the last spring semester as
the child will likely have a higher income as they start to work later in the year.
• To the extent that investment earnings remain after all
EAP withdrawals for the children are complete, the excess
can be received by the subscriber. However, these
amounts are not only taxable, but are subject to an
additional 20% tax. Alternatively, up to $50,000 in
withdrawals can also be transferred to the RESP
subscriber’s RRSP (if sufficient RRSP contribution room
is available), thus eliminating the additional 20% tax. An
immediate decision is not necessary as the funds can be
retained in the RESP until the 36th year after it was
opened.

The type, timing, and amount of RESP
withdrawals can significantly impact overall levels of
taxation. Where an RESP is held for multiple children,
greater flexibility exists. Consult a specialist to determine
what should be withdrawn, at what time, and by whom.

Redistribution of this material is prohibited.