How Are RESP Withdrawals Taxed? Contributions, EAPs, and AIPs

RESP withdrawals are taxed based on which of three pools the money comes from. Your original contributions come back tax-free. Government grants and investment growth, paid out together as an Educational Assistance Payment while the beneficiary is in school, are taxable income in the student’s hands. And if no one ever attends post-secondary education, the growth comes out to you as an Accumulated Income Payment taxed at your marginal rate plus a 20% federal penalty (12% in Quebec). Understanding how RESP withdrawals are taxed comes down to knowing which bucket each dollar is drawn from.

The Three Pools Inside the Plan

Every RESP holds three distinct pools, and the tax rules follow the pool, not the plan as a whole.

Your contributions — after-tax dollars you already paid income tax on before depositing.
Government grants, primarily the Canada Education Savings Grant, along with any Canada Learning Bond amounts.
Investment earnings generated inside the plan from interest, dividends, and capital gains.

When the beneficiary is enrolled in a qualifying program, the grants and investment earnings are bundled and paid out together as an Educational Assistance Payment. Contributions are withdrawn separately. That separation is what drives the tax outcome.

Getting Your Contributions Back

Withdrawing your original contributions is tax-free, no matter who receives the money and no matter whether the beneficiary is in school. You already paid tax on those dollars, so the CRA does not tax them again. No T4A slip is issued, and the amount never appears on anyone’s tax return.¹

There is no CRA dollar cap on a contribution withdrawal. You could pull the full contribution balance in a single transaction. Most families pair a contribution withdrawal with an EAP withdrawal to cover the student’s costs while keeping the student’s taxable income low.

One caution. If you pull contributions out at a time when no beneficiary is eligible for an EAP, the plan may have to repay a proportional amount of CESG back to the government.² When the student is enrolled and receiving EAPs, this is not an issue. Otherwise, ask your RESP promoter whether a grant repayment will be triggered before you request the withdrawal.

Educational Assistance Payments: Taxed to the Student

Everything that is not your contribution — the grants and the growth — comes out as an EAP when the beneficiary is enrolled. The student reports the full EAP amount as income on their tax return for the year they receive it, and the RESP promoter issues a T4A slip showing the taxable amount.¹

This is what makes the RESP tax-efficient. Most full-time students earn little other income. The federal basic personal amount for 2026 shelters roughly the first $16,400 of income from federal tax, and provincial credits add more shelter on top. A student receiving $10,000 or even $15,000 in EAP income in a year with no significant employment income will often owe little or no tax. Growth and grants accumulate untaxed inside the plan, then come out taxed to someone whose bracket is effectively zero.

How Much Can Come Out as an EAP

The CRA caps EAPs during the first 13 consecutive weeks of enrollment. For a full-time student the cap is $8,000 in that initial period. For a part-time student, the cap is $4,000 per 13-week period.³ These limits were set by legislation in 2023 and are not indexed.

Once a full-time student completes 13 consecutive weeks of enrollment, the per-period cap lifts and subsequent EAPs have no fixed dollar limit. If a full-time student then goes 12 months without being enrolled for 13 consecutive weeks, the $8,000 cap resets and applies again.³

Even after the per-period cap disappears, an annual reasonableness threshold still applies. For 2026 that threshold is $29,459. If total EAPs in a calendar year go above it, the promoter must verify the expenses are reasonable and may ask for receipts before releasing more.³

The Six-Month Post-Enrollment Window

A beneficiary can still receive EAPs for up to six months after they stop being enrolled, provided the payment would have qualified as an EAP immediately before enrollment ended.⁴ Miss this window and you lose the ability to take EAPs. Any remaining growth then has to come out through the much more expensive AIP route.

When Nobody Goes to School: Accumulated Income Payments

If the beneficiary never pursues post-secondary education, the investment growth still has to leave the plan eventually. It comes out as an Accumulated Income Payment, and this is where the tax hit is severe.

An AIP consists only of investment growth. All government grants have to be repaid to the federal government before or alongside the AIP.² The subscriber receives the AIP and includes the full amount in their income for the year.

Two layers of tax apply. First, the full AIP is added to the subscriber’s regular income and taxed at their marginal rate. Second, an additional 20% federal tax is charged under Part X.5 of the Income Tax Act. In Quebec, the Part X.5 rate is 12% instead of 20%.⁵ For a subscriber in a high bracket, the combined bite can easily exceed half the AIP. The penalty is deliberate: RESPs are meant for education, not as a general investment shelter.

When an AIP Is Even Allowed

You cannot take an AIP whenever you want. The subscriber has to be a Canadian resident, and the payment can go to only one subscriber. On top of that, at least one of the following must be true:⁶

The plan is at least 10 years old (past its 9th anniversary), every living beneficiary is at least 21, and no beneficiary is currently eligible to receive an EAP.
The plan has reached its 35th anniversary (or 40th for a specified plan where the beneficiary qualifies for the Disability Tax Credit).
All beneficiaries have died.

These rules stop subscribers from pulling the plug early on a plan where the beneficiary might still enroll.

Softening the AIP Hit With an RRSP Rollover

The most effective way to blunt the AIP tax is to transfer the money into your RRSP, pooled registered pension plan, or specified pension plan. The lifetime cap on this rollover is $50,000, and you need enough contribution room in the receiving plan to absorb it. The transfer must happen in the year the AIP is received or within the first 60 days of the following year.⁴

You claim a deduction that offsets the AIP income, which also removes the 20% Part X.5 penalty on the transferred portion. Money simply moves from one tax-sheltered account to another with no immediate tax. Any AIP amount beyond $50,000, or beyond your available room, is taxed in full with the penalty.

If the RESP beneficiary qualifies for the Disability Tax Credit and is also the beneficiary of a Registered Disability Savings Plan, another route exists: rolling the AIP into the RDSP on a tax-deferred basis. The beneficiary has to be a Canadian resident, under 60, and eligible for the DTC, and the RDSP holder must consent.⁴

The Plan’s Own Deadline

An RESP can accept contributions for up to 31 years and must be fully wound up within 35 years of opening. Where the beneficiary qualifies for the Disability Tax Credit and the plan is not a family plan, the maximum life extends to 40 years.⁷ When the plan terminates, everything inside must be paid out: contributions returned tax-free, grants repaid, and any remaining growth taken as an AIP with the full tax consequences.

Family RESPs give you one more lever. If an older beneficiary chooses not to attend post-secondary school, a younger sibling can use the funds. That keeps the EAP route alive and keeps the AIP tax off the table.

If the Beneficiary or Subscriber Lives Outside Canada

Residency changes the answer. A beneficiary has to be a Canadian resident to receive the CESG or Canada Learning Bond portion of an EAP.⁶ If the CRA considers the beneficiary non-resident, grant portions of the EAP become unavailable and may need to be repaid. The growth portion can still be payable, but it may be subject to non-resident withholding tax, and the beneficiary’s country of residence may also tax the income.

The subscriber’s residency matters too. An AIP can only be paid to a subscriber who is a Canadian resident at the time of the withdrawal.⁶ If you have moved abroad and want to wind up the plan, the AIP route may be closed to you until you re-establish Canadian residency. Families planning an international move should draw the RESP down strategically before leaving.

1
Canada.ca. T4A Slip – Information for Payers
2
Justice Laws Website. Canada Education Savings Regulations – Section 11
3
Canada Revenue Agency. Registered Education Savings Plan (RESP) Bulletin No.1R3
4
Canada Revenue Agency. Registered Education Savings Plans Payments, Transferring and Rolling Over Registered Education Savings Plans Property
5
Canada Revenue Agency. RESP – Accumulated Income Payments
6
Canada Revenue Agency. Registered Education Savings Plans (RESPs)
7
Government of Canada. Managing Your RESP