RESP AIP Tax Expla

Key Takeaways

• An AIP applies only to accumulated RESP earnings (investment growth) — not your original contributions or government grants.
• AIPs are taxed at your regular income tax rate plus an additional tax.
• AIPs are reported in Box 040 on a T4A tax slip and must be included in your income for the year received.
• Eligible subscribers may be able to transfer up to $50,000 of AIP earnings to an RRSP, which may reduce or defer the tax hit—but this is not automatic and requires available RRSP contribution room.
• Once an AIP is paid, the RESP must be closed by the end of February of the following year.
• There are alternatives worth exploring first, including keeping the RESP open, changing the beneficiary, or transferring to an RRSP where eligible.

What is RESP AIP tax?

An Accumulated Income Payment (AIP) is a payment of investment earnings from an RESP. It happens when those earnings are not being used for eligible post-secondary education through an Educational Assistance Payment (EAP).

An AIP is not the same as an EAP. An EAP is a withdrawal students use to pay for school—it is taxed in the student’s hands, often at a low rate. An AIP goes to the subscriber (usually a parent or grandparent) and is treated differently. The subscriber must pay regular income tax on the AIP amount, plus additional taxes.

The additional tax reflects that RESP savings received tax advantages while in the plan. Understanding it before you act is one of the most important steps you can take. If your RESP is with Embark, an Education Savings Specialist can help you weigh your options. Using an RESP for educational purposes as intended helps avoid this scenario entirely.

What part of the RESP becomes an AIP?

It helps to think of an RESP as having three separate buckets. Each bucket has different rules when the plan is not used for education.

Bucket	What it is	What happens if not used for education?
Subscriber contributions	Money you put into the RESP	Returned to you tax-free
Government grants and bonds	CESG, CLB, and provincial grants	Returned to the government, if not used for post-secondary purposes
Accumulated income	Investment growth earned on contributions	May be paid out as an AIP and taxed

Only the accumulated income, the growth your RESP earned over time, may become an AIP. Your original contributions are not taxed when returned to you. Government grants are not paid to the subscriber and must go back to the government if the beneficiary does not use them for eligible education.

When can you receive an AIP?

There are specific conditions that typically must be met before an AIP can be paid. According to the Canada Revenue Agency, an AIP may generally be available when:

• The RESP has been open for at least 10 years
• All beneficiaries named in the plan are generally at least 21 years old and are not eligible for EAPs
• The subscriber is a Canadian resident
• The plan’s terms allow AIPs

An AIP may also be available in some special cases, such as when a beneficiary has passed away or when the plan must be wound down. Conditions can vary by plan. Your RESP provider can confirm what applies to your specific situation. If your RESP is with Embark, feel free to speak with an Education Savings Specialist for more information.

How is an AIP reported for tax?

When you receive an AIP, your RESP provider (referred to as a promoter by CRA) will report it in Box 040 on a T4A slip. You must include the full AIP amount as income on your tax return for the year you receive it.

The additional tax is calculated separately using tax Form T1172 (Additional Tax on Accumulated Income Payments from RESPs). This form is filed alongside your personal income tax return.

What is the additional tax on RESP AIPs?

AIPs face two layers of tax:

Tax	Rate	Who it applies to
Regular income tax	Your marginal rate	All AIP recipients
Additional tax	20%	Residents outside Quebec
Additional tax	12%	Residents of Quebec

The additional tax sits on top of your regular income tax. If your marginal tax rate is 33%, for example, the combined rate on an AIP could reach 53% outside Quebec (33% + 20%) or 45% in Quebec (33% + 12%). These are illustrative numbers only – your actual tax will depend on your total income and province. This is why planning ahead matters, and why many families look for ways to reduce the tax hit before taking an AIP. Speak with an Education Savings Specialist for more information.

Can you reduce RESP AIP tax with an RRSP rollover?

Possibly, but only if certain conditions are met.

The federal government explains that eligible subscribers may be able to transfer up to $50,000 of RESP accumulated income directly to an RRSP, certain other registered pension plans (such as a PRPP or SPP). In some cases, a transfer to an eligible spouse or common-law partner’s plan may also be possible.

To use this option, you generally need:

• Enough RRSP contribution room—the amount transferred counts against your available room
• The transfer to be made directly to the registered plan, not as a cash withdrawal to you first
• To meet any other conditions set by the CRA

This rollover may help you avoid the additional tax and defer regular income tax to when you eventually withdraw RRSP funds. But it is not automatic, and it is not available to everyone. Speak with your RESP provider or a tax professional before counting on this option.

What are Form T1171 and Form T1172?

Two CRA forms come up often when dealing with AIP tax:

Form	What it does	When you may use it
T1171	Requests a direct transfer to an RRSP or other eligible registered plan, so the promoter withholds less or no tax at source	When you want to roll over eligible AIP earnings to an RRSP without tax being withheld upfront
T1172	Calculates the additional tax (20% or 12% for Quebec) on the AIP you received	When you receive an AIP and are filing your personal tax return

If you receive an AIP as a cash payment (rather than as a direct transfer), your plan provider will generally withhold both regular and additional taxes at source. Using Form T1171 to set up a direct RRSP transfer may allow you to avoid that withholding—but only if you meet the eligibility conditions and have available contribution room.

Both forms are available on the CRA website.

What happens after an AIP is paid?

An AIP is often a final step in closing an RESP. Once an AIP has been paid, the RESP must be terminated by the end of February of the year after the year the first AIP was made. If you have questions about how this timeline works for your plan, an Embark Education Savings Specialist can help you think it through.

This means you cannot take an AIP and then continue to hold the RESP open for a student who might decide to enroll later. Families who are still hopeful about future education should carefully weigh this before requesting an AIP.

Alternatives to taking an AIP

Before requesting an AIP, it is worth reviewing every option that may still be open to you:

• Keep the RESP open if your child is still considering school or taking a gap year—RESPs can remain open for up to 35 years
• Wait for a gap-year student to enrol in eligible post-secondary education
• Change the beneficiary to another eligible child in the family
• Use funds for another eligible beneficiary in a family RESP plan
• Transfer to a Registered Disability Savings Plan (RDSP) where the beneficiary has a disability and conditions are met
• Request an eligible AIP and roll it over to your RRSP where you have sufficient contribution room
• Donate accumulated income to a designated educational institution in some situations

You may also find these Embark articles helpful before making any decision:

Accumulated Income Payments for RESPs Explained |
What Happens to an RESP if It’s Not Used?

Are RESP Withdrawals Taxable? |
RESPs and Taxes |
RESP Withdrawal Rules

Mistakes to avoid before taking an AIP

• Thinking the entire RESP balance is taxed as an AIP—only accumulated income is subject to AIP tax, not your original contributions
• Forgetting that government grants go back to the government, not to the subscriber
• Assuming the RRSP rollover is automatic—it requires available RRSP room, a direct transfer, and proper paperwork
• Taking an AIP before confirming that future education is truly no longer an option
• Ignoring Quebec’s 12% additional tax rate (not 20%)—this matters for residents of Quebec
• Not planning around the RESP closure requirement that follows an AIP
• Not checking RRSP contribution room before expecting rollover relief to apply

Frequently Asked Questions

What is RESP AIP tax?

AIP tax is the tax applied to Accumulated Income Payments from an RESP—payments of investment earnings that are not being used for eligible education. AIPs are taxed at the recipient’s regular income tax rate plus an additional 20% tax (or 12% for Quebec residents).

How much tax do you pay on an RESP AIP?

The total depends on your income level. You will owe regular income tax at your marginal rate, plus the 20% additional tax (or 12% in Quebec). In some cases, the combined rate could be 40% or more. A tax professional can help you estimate the actual impact for your situation.

Does AIP tax apply to RESP contributions?

No. Your original contributions to the RESP can be returned to you tax-free. AIP tax applies only to the accumulated income, the investment growth, not to what you put in.

Can I transfer an RESP AIP to an RRSP?

Possibly. Eligible subscribers may be able to transfer up to $50,000 of accumulated RESP earnings to an RRSP where conditions and available contribution room exist. Using Form T1171 allows the promoter to make the transfer directly without withholding tax at source, where eligible. This is not automatic—eligibility and room must be confirmed with your provider or tax professional.

What happens to the RESP after an AIP is paid?

Once an AIP is made, the RESP must be closed by the end of February of the following year. This is an important planning detail—taking an AIP means the plan must close, so families should explore all other options before requesting one.

If you’re unsure what to do with unused RESP savings, you don’t have to figure it out alone. Embark’s Education Savings Specialists are here to help you understand your options—before you make a decision you can’t undo.