Withdrawals of Original Contributions
The withdrawal of a subscriber’s original contributions is called a Refund of Contributions
and is tax-free, and this withdrawal can be made at any time. The subscriber can request a Refund of Contributions
be paid to the subscriber or they can direct the RESP promoter/provider to pay the Refund of Contributions
directly to a student beneficiary. For example, if a RESP beneficiary decides not to go to school or the RESP is to be terminated, a Refund of Contributions
can be requested at any time. There are no restrictions on the use of the refunded contributions.
In general, because the subscriber’s original contributions were not deductible from their income in the year of the contribution, these contributions were made with after-tax monies. As a result, the subscriber’s original contributions are consider by the CRA to be a refund and can be withdrawn from the RESP at anytime – tax-free.
In addition, the government grants were contributed to the RESP account free of taxation and the RESP investment income was allowed to accumulate within the RESP without paying any income tax. As a result, when these amounts are withdrawn from the RESP account, the withdrawal must be included in the student beneficiary’s income for tax purposes.
Because the original subscriber contributions can be withdrawn tax-free at anytime, there are no restrictions on Refund of Contributions. If you plan to make a withdrawal of subscriber contributions and there is not a student beneficiary eligible to receive an EAP payment, the following rules are applied:
- Contributions that were accompanied by CESG grants are considered to be refunded before those contributions that were not accompanied by a CESG grant.
- Where a Refund of Contributions is made, and the original contribution was accompanied by a CESG grant, you must repay any associated grant.
- The CESG grant repayment is made to Human Resources and Skills Development Canada (HRSDC) and the repayment amount will equal the lesser of:
- 20% of the amount of the refund, or
- any balance, at the time of refund, in the grant account of the RESP. Note: The amount repaid to HRSDC does not include income earned by the CESG grant monies.