Is RESP Taxable? Contributions, EAPs, Grants, and Rollovers

An RESP is partly taxable and partly not. While the money stays in the plan, nothing is taxed. When funds come out, your original contributions are returned tax-free because you deposited them with after-tax dollars, but the investment earnings and government grants are taxable income. Who pays the tax depends on where the money goes: if it goes to a student beneficiary for school, the student reports it; if it comes back to you because the child never enrolls, you report it and pay an extra penalty on top.

Contributions Are Never Taxed on Withdrawal

Every dollar you contribute to an RESP is money you have already paid income tax on. Unlike an RRSP, an RESP contribution gives you no deduction on your return.¹ Because the tax has already been collected, the principal is yours to withdraw at any time without a further tax bill, and the financial institution will not issue a T4A slip for that return of capital.²

The real tax benefit is what happens inside the account. Interest, dividends, and capital gains compound year after year without being taxed.³ Tax on that growth is deferred until it leaves the plan.

Educational Assistance Payments Are Taxed to the Student

When the beneficiary enrolls in a qualifying post-secondary program, they can start drawing Educational Assistance Payments. An EAP combines the government grant money and the accumulated investment earnings. That combined amount is taxable income to the student, not to the subscriber, and the promoter issues a T4A slip to the beneficiary each year showing the total paid.⁴

This split is the whole point of the plan. Students usually earn very little, and the federal basic personal amount (about $16,129 for 2025, with an indexed increase expected for 2026) shelters a large piece of income from tax outright.⁵ Add tuition credits, and most full-time students owe little or no federal tax on their EAPs. Money that grew tax-free for years comes out taxed at a rate close to zero, instead of at the subscriber’s marginal rate.

To qualify, the program must be at the post-secondary level and generally last at least three consecutive weeks with 10 or more hours of coursework per week. Part-time “specified educational programs” require at least 12 hours of coursework per month. Universities, colleges, trade schools, CEGEPs, and eligible distance-learning courses typically qualify, and foreign institutions can qualify depending on the plan’s terms.²

Government Grants: Untaxed Going In, Taxable Coming Out

The federal government tops up your RESP through two programs. The Canada Education Savings Grant matches 20% of your annual contributions up to $500 per year, with a lifetime cap of $7,200 per child.⁶ Lower-income families get an additional CESG: for 2026, families with adjusted income of $58,523 or less receive an extra 20% on the first $500 of contributions, and families with income between $58,523 and $117,045 receive an extra 10% on that same first $500.⁷ The Canada Learning Bond adds up to $2,000 per child for eligible lower-income families without requiring any personal contribution. For the July 2025 to June 2026 benefit year, a family with one to three children qualifies if adjusted income is $57,375 or less.⁸

These grants are not taxed when they arrive. Their tax treatment only appears at withdrawal, when they form part of the student’s taxable EAP. If the money is never used for school, the grants don’t get taxed either. They go back to the government instead.

If the Beneficiary Doesn’t Go to School

This is where the tax picture turns expensive, and the rules differ for each part of the plan.

Your contributions still come back to you tax-free. That money was always yours.²

All CESG and CLB money must be repaid to Employment and Social Development Canada. If the plan accumulated the full $7,200 in CESG, every dollar returns. Families sometimes assume they can collapse the plan and keep everything, and the grant clawback is the most commonly missed piece.

The investment growth can be paid to you as an Accumulated Income Payment. An AIP is included in your income and taxed at your marginal rate, and the CRA then applies an additional 20% tax under Part X.5 of the Income Tax Act (12% in Quebec).⁹ For a subscriber in a higher bracket, the combined tax can consume well over half the earnings.

AIPs are not available on demand. The RESP must have been open for at least 10 years, and every current and former beneficiary must be at least 21 years old and not eligible for EAPs.² The subscriber must be a Canadian resident when the payment is made.³

Rolling AIP Income Into an RRSP

You can reduce the AIP tax bill by transferring up to $50,000 of AIP income directly into your own RRSP, or your spouse’s or common-law partner’s, if you have the contribution room. A direct transfer avoids the withholding tax that would otherwise apply, and you claim the RRSP deduction on your return that year.² The contribution must be made in the year you receive the AIP or within the first 60 days of the following year. This route isn’t available if you only became the subscriber because the original subscriber died.

Moving Money to Another Child Instead

Before triggering an AIP, look at whether a sibling can use the plan. In a family RESP, you can add or substitute a sibling under 21 without repaying grants, and you can transfer funds between RESPs tax-free when the plans share a sibling beneficiary.¹⁰ Adding a beneficiary who is not a sibling, or transferring to a plan whose beneficiaries are not siblings, triggers repayment of the government grants. Planning the beneficiary structure early can preserve both the grants and the tax-sheltered growth if one child’s plans change.

Overcontribution Penalty

The lifetime contribution limit is $50,000 per beneficiary across all RESPs naming that child. Going over triggers a 1% per month penalty on your share of the excess still in the plan at the end of each month, and it keeps accruing until you withdraw the surplus.¹¹ This matters most when grandparents, parents, and other relatives all contribute for the same child, since the cap is per beneficiary, not per subscriber.

Residency and Cross-Border Tax

Residency affects both sides of the plan. If you leave Canada, the RESP can stay open, but you cannot receive an AIP as a non-resident because Canadian residency at the time of payment is one of the conditions.³

If the beneficiary studies abroad, EAPs are still possible when the program meets the qualifying rules. A beneficiary who is a non-resident of Canada may face Canadian withholding on payments; Canada generally withholds 25% on Canadian-source income paid to non-residents, though a tax treaty with the beneficiary’s country of residence can reduce that rate.¹² How that plays out for EAPs specifically varies, so check with the promoter and a tax professional before requesting withdrawals.

The U.S. treatment is different from Canada’s. The IRS does not recognize the RESP’s tax-sheltered status, so a U.S. citizen or permanent resident holding a Canadian RESP may need to report the plan’s earnings annually and file Form 3520 and Form 3520-A treating it as a foreign trust. Dual citizens should get cross-border tax advice before opening or contributing to a plan.

1
Canada Revenue Agency (CRA). Line 20800 – RRSP Deduction
2
Canada Revenue Agency (CRA). Registered Education Savings Plans Payments, Transferring and Rolling Over Registered Education Savings Plans Property
3
Canada Revenue Agency (CRA). Registered Education Savings Plans (RESPs)
4
Canada Revenue Agency (CRA). T4A Slip – Information for Payers
5
Canada Revenue Agency (CRA). Line 30000 – Basic Personal Amount
6
Canada.ca. Canada Education Savings Grant
7
Government of Canada. Notice 1114 – Revised Income Brackets for the Additional Amount of the CESG for the Calendar Year 2026
8
Government of Canada. Revised Income Brackets for the Canada Learning Bond (CLB) for the July 1, 2025 to June 30, 2026 Benefit Year
9
Canada Revenue Agency (CRA). RESP – Accumulated Income Payments
10
Government of Canada. Managing the Registered Education Savings Plan, Taxes and Transfers
11
Canada Revenue Agency (CRA). Registered Education Savings Plans Contributions
12
Canada.ca. Non-Residents and Income Tax 2025