What Canada’s Budget did to RESP Withdrawals

By PAIP Canada staff

            Canada’s Federal government recently tabled a budget that is expected to increases one type of Registered Education Savings Plan (RESP) withdrawal from $5,000 to $8,000.

            Here’s the refresher: when the beneficiary of an RESP begins attending post-secondary education, there are two types of withdrawals that are possible. The first is called a post-secondary withdrawal (PSE) and includes the contributions made by the subscriber. It is not taxable. The second is called an educational assistance payment (EAP) and includes the grant and growth that accrued inside the plan. This withdrawal is taxable.

            Before the introduction of the most recent budget, the maximum EAP withdrawals allowed during the first 13 weeks of one’s post-secondary schooling was $5,000. This is now expected to increase to $8,000, and with good reason.

            When a student leaves home for the first time, there is a cost associated with furnishing one’s new abode (even if it is no bigger than a dorm room), and of course there are other expenses such as books, food, and other miscellaneous items.

            For those who continue their studies beyond the first semester, the good news is that there is no limit on EAP payments after the first 13 weeks, nor are there any limitations on PSE withdrawals from day one. This minor change is expected to help students (and parents) finance post-secondary studies with fewer restrictions.

            A last note: for part-time students, different rules apply than those listed above (which are for full-time students).