RESP withdrawal tax: EAPs taxed to the student, AIPs taxed 20% extra

Which RESP withdrawals are taxable, and to whom?

Each dollar leaving an RESP is one of four kinds of payment, and the kind decides who pays tax. The subscriber's contributions come back tax free, with no T4A, whether they go to the subscriber or to the student canada.ca. Everything else (the CESG, the Canada Learning Bond, provincial grants and the investment growth) leaves as an EAP taxed to the student, as an AIP taxed to the subscriber, or goes back to the government.

Promoters call a contribution withdrawal taken while the student is in school a PSE (postsecondary education) withdrawal. The Income Tax Act calls it a refund of payments and carves it out of the EAP definition in 146.1(1), so 146.1(7) never puts it in anyone's income laws-lois.justice.gc.ca.

EAP vs PSE: why the EAP usually comes out first

Draw EAPs while the student has room under their own credits, and leave the contributions for later. An EAP is the student's income in the year received, and students often pay little or no tax on it because their income is low canada.ca. Contributions can come back tax free at any point, but growth and grants that aren't paid out as EAPs while the student qualifies end up as an AIP or back with the government.

EAPs need proof of enrolment, and the first payments are capped. For a full time (qualifying) program, EAPs are limited to $8,000 for the first 13 consecutive weeks, then no limit applies while the student keeps qualifying. For part time (specified) study, the cap is $4,000 per 13 week period. The promoter can top up either cap with tax free contributions canada.ca. EAPs can still be paid for up to six months after enrolment ends, for costs that would have qualified before it ended.

A worked example: a first year full time student receives an $8,000 EAP in September 2026 and earns $6,000 at a summer job. Net income is $14,000, below the 2026 federal basic personal amount of $16,452 canada.ca, so no federal tax is owed before the tuition credit is even claimed. Each province has its own basic amount, so check the provincial side. Unused tuition credit can then be carried forward or transferred to a parent.

The same $8,000 taken in the student's first working year, at the 14% lowest federal rate or higher canada.ca, costs real tax. Timing the EAPs into the low income school years is most of the planning.

What happens to the growth when no one goes to school?

The growth can come out as an AIP to the subscriber when one of three conditions is met canada.ca:

The AIP must go to one subscriber resident in Canada, and the plan must close by the end of February of the year after the first AIP is paid canada.ca. The subscriber reports it on line 13000 and pays regular tax at their marginal rate, plus an additional tax of 20% (12% for Quebec residents) under ITA 204.94 laws-lois.justice.gc.ca.

That additional tax is calculated on Form T1172, Additional Tax on Accumulated Income Payments from RESPs canada.ca, and carried to line 41800 of the T1 canada.ca. It's due with the return balance, usually April 30 of the next year. Contributions still come back tax free, and the grants go back to the government unless a sibling with CESG room can use the CESG canada.ca.

How an RRSP contribution cancels the 20%: a worked example

A subscriber who contributes to their own or their spouse's RRSP (or a PRPP or SPP) in the year of the AIP or the first 60 days after, and deducts it on line 20800 that year, reduces both the regular tax and the amount subject to the additional tax. The lifetime cap is $50,000 of AIPs canada.ca, set in 204.94(2) laws-lois.justice.gc.ca. The deduction still needs RRSP room, so check the RRSP limit first.

Take a subscriber who receives a $20,000 AIP in 2026 and has $14,000 of RRSP room.

With the $14,000 transfer, the subscriber pays regular tax on $6,000 of net AIP income plus $1,200 on T1172, instead of regular tax on $20,000 plus $4,000. Transferring directly to the RRSP with Form T1171 also stops the promoter from withholding tax on that part canada.ca.

Only the original subscriber, someone who took over the rights on a marriage breakdown, or the spouse or common law partner of a deceased subscriber (when no subscriber is left) can use this. Someone who became a subscriber after the original subscriber died can't canada.ca.

When does a withdrawal force the grant to be repaid?

Taking contributions out while the beneficiary isn't eligible for an EAP normally means repaying CESG. The exception is a withdrawal that only removes an overcontribution of $4,000 or less; above that, CESG is repayable on the whole amount withdrawn, and repaid grant doesn't restore room canada.ca. A PSE withdrawal while the student qualifies for EAPs triggers no repayment.

The student also has a lifetime CESG cap of $7,200, and any CESG received above it must be repaid. Each EAP comes with a notice showing the CESG portion canada.ca. The grant amounts, income tiers and catch up rules are on the RESP grant page.

A beneficiary eligible for the disability tax credit can sometimes have the growth rolled into their RDSP with no regular tax and no 20% tax, but the CESG and CLB must be repaid first and the RESP closes by the end of February of the next year canada.ca. See RDSP grant and bond for the receiving side.

Which T1 line does each RESP withdrawal go on?

EAPs (T4A box 042) go on the student's line 13000, and AIPs (T4A box 040) go on the subscriber's line 13000, with the type of income written in the space to the left of the line canada.ca. The line 13000 page covers the other items that share it.

Contribution withdrawals get no slip and aren't reported anywhere canada.ca. If your client's T4A box 042 looks bigger than the EAP they asked for, compare it with the promoter's statement: a PSE withdrawal paid in the same cheque shouldn't be in that box.