Whether you recently opened a Registered Education Savings Plan (RESP) for your child or plan on doing so in the future, you’ve likely heard the term Education Assistance Payments (EAPs) thrown around. Understanding what this term means, along with how and when to access these funds, will ensure you can maximize your RESP benefits without unexpected taxes or clawbacks.
For more information on educational assistance payments (EAPs), planning your withdrawals, and other essential details, stick around.
Educational Assistance Payments (EAPs) Vs. RESP Contributions: What’s the Difference?
When it comes to your registered education savings plan (RESP) and the money within your account, it’s helpful to break things down into two categories:
RESP Contributions
Your RESP contributions are the money that you deposit into the account as the named subscriber. These funds consist of money you’ve made throughout the year, and because they have already been taxed, when you withdraw contributions for an RESP, the money won’t be subject to taxes.
Educational Assistance Payments (EAPS)
Education assistance payments consist of government grants like the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), and other provincial incentives, along with your investment earnings you collect over the years.
When EAPs are withdrawn from your RESP account, the money is considered taxable income for the student. However, because students typically earn little to no income while they are attending a post-secondary educational institution, their marginal tax rate is often very low, or even zero.
When Can You Receive EAPs?
EAPs aren’t automatically available to you. To receive these payments, your child must be enrolled in a qualifying educational program from a recognized post-secondary institution, such as a college, university, trade school, or apprenticeship program.
To withdraw educational assistance payments, your RESP provider will request the following information:
- Proof of enrolment (part-time studies and full-time programs are eligible).
- Program start and end dates.
- List of courses.
Once this information is verified, you can request EAPs to pay for qualifying education expenses.
What Expenses Can EAPs Cover?
EAPs are flexible, but they must only be used for education-related costs. Common eligible expenses include:
- Tuition and other mandatory fees.
- Textbooks, supplies, and other tools or equipment.
- Reasonable living expenses, such as rent, utilities, meal plans, and transportation.
How Are RESP Withdrawals Taxed (And to Whom)?
All EAPs are considered income to the student, not the subscriber. During tax season, students will receive a T4 slip indicating their EAP amounts in box 042.
To potentially reduce taxes:
- Claim tuition credits (T2022 Form) to offset EAP income.
- Plan your withdrawals around academic years or terms, ensuring that you spread EAPs across several semesters or years.
Both of these strategies will keep your child’s taxes as low as possible while ensuring funds are always available.
Planning Withdrawals So Money Lasts Longer
Your RESP withdrawals can—and should—be timed strategically to make the most of your savings and government grants. Here’s what to keep in mind:
Across Terms or Academic Years:
Try to spread withdrawals over multiple semesters or school years instead of taking a large lump sum at once. This helps manage taxable income and allows your RESP investment earnings to keep growing.
Coordinate With Scholarships and Work Income:
If your child receives scholarships, bursaries, or earns money from a part-time job, adjust your withdrawal timing and amounts to fill in the gaps without over-withdrawing.
Use EAPs First:
Once your child’s enrolment is confirmed, prioritize withdrawing income and government grants (EAPs) first. These funds can’t be accessed once your child finishes school and may be clawed back if left unused. Your contributions (capital) can always be withdrawn later, tax-free.
Quick Examples & Mini Checklist
Check out these quick examples and take advantage of our mini EAP checklist below:
Scenario 1: Full-time student, first term
Your child is set to start post-secondary studies in the fall. You should withdraw your EAP first to pay for tuition, and then request capital in later years.
Scenario 2: Part-time beneficiary/co-op term
Your student is studying part-time while enrolled in a co-op program. Consider withdrawing smaller EAP amounts from your RESP that align with the income they earn from their co-op to avoid increasing their taxes owed.
Mini checklist:
- Verify your beneficiary’s enrolment.
- Withdraw a mix of EAPs and capital.
- Gather your student’s enrolment proof, receipts, and any invoices.
- Submit your withdrawal request to your RESP provider.
EAPs are one of the many benefits RESPs provide Canadian families. By understanding how they work, how to time withdrawals, and keep records, you can make your funds go further. This way, your child can focus on learning and achieving their academic goals.
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.
