How are RESP Withdrawals Taxed?

Components of the RESP Withdrawal: PSE and EAP

When a withdrawal is made from a Registered Education Savings Plan (RESP) for a qualified or specified education program, what is the tax treatment of each component?

Post Secondary Education (PSE)

  • Withdrawals from the PSE portion are not taxed
  • The PSE is comprised of the original contributions made to the plan with after tax dollars (no tax deduction was received)

Education Assistance Payment (EAP)

  • The EAP is the taxable portion of the withdrawal
  • Often comprised of income, growth and 20% Canadian Education Savings Grant
  • Taxed in the hands of the beneficiary (or student) who is often in a lower tax bracket than the contributor (or subscriber)
  • $7200 is the lifetime maximum grant allowable per beneficiary

Example: Imagine a Family RESP where both beneficiaries are withdrawing from the plan. Student A has a part-time job and is in a higher tax bracket than Student B. You can allocate the PSE portion (non-taxable) to Student A and allocate the EAP portion (taxable) to Student B, to reduce taxes paid, if any.