Is RESP Taxable? Contributions, Grants, and Withdrawals

An RESP is taxable at some stages and not at others. Contributions go in with after-tax dollars and are never deductible, so they come back out tax-free. Investment growth and government grants are sheltered while they sit inside the plan. When money is withdrawn, whether it is taxable depends on who receives it and why: a student pulling funds for school pays tax on the earnings and grant portion at their own low rate, while a subscriber pulling earnings out because no one went to school faces regular income tax plus an extra 20% federal surtax.

Contributions Are Not Deductible, and the Ceiling Is $50,000

Every dollar you put into an RESP comes from money you have already paid income tax on. Unlike an RRSP, RESP contributions cannot be deducted on your return, and neither can interest on money borrowed to contribute.¹ Putting $2,500 in for the year does not reduce your taxable income by a cent. The payoff comes later, when the plan’s growth is taxed in someone else’s hands.

There is no annual contribution cap, but the lifetime limit is $50,000 per beneficiary across every RESP opened for that child.² If two grandparents and a parent each open a plan for the same child, their combined contributions cannot exceed that $50,000 total.

Go over the limit and each subscriber owes a 1%-per-month tax on their share of the excess, for every month the excess remains in the plan.² Each subscriber who contributed during the year files Form T1E-OVP, and the tax is due within 90 days after year-end.

Growth and Grants Are Sheltered Inside the Plan

Interest, dividends, and capital gains earned inside an RESP are not taxed while the plan is open. Section 146.1 of the federal Income Tax Act provides that no income tax is payable by a trust governed by an RESP on its taxable income for the year.³ That shelter covers returns on both your own contributions and any government grants deposited into the plan.

Government grants themselves are also not taxable income to you when they arrive. The Canada Education Savings Grant matches 20% of the first $2,500 you contribute each year, up to $500 annually, with a $7,200 lifetime cap per beneficiary. Lower-income families can also receive the Canada Learning Bond without contributing anything.⁴ Both grants sit alongside your contributions and grow tax-free until withdrawn, at which point they follow the same tax rules as investment earnings.

The practical effect is faster compounding. A non-registered account owes tax on investment income every year, which drags down what stays invested. Inside an RESP, the full balance keeps growing untouched until someone withdraws it.

Withdrawals for School: Two Pools, Two Tax Results

When the beneficiary enrolls in a qualifying post-secondary program, money comes out of the plan in two distinct pools with very different tax consequences.

Educational Assistance Payments Are Taxed to the Student

An Educational Assistance Payment (EAP) draws from the investment earnings and the accumulated government grants. Neither pool has ever been taxed, so EAPs are treated as taxable income for the student, not the subscriber.⁵ The promoter issues a T4A slip and the student reports the amount on their return.⁶

Most students end up owing little or nothing. The federal basic personal amount for 2026 is over $16,000, so a student can earn at least that much before any federal income tax applies.⁷ Federal tuition credits reduce the bill further, and the lowest federal bracket for 2026 is taxed at 14%.⁸ Shifting the tax from a higher-earning parent to a student is one of the main financial reasons to use an RESP.

There are limits on how much can come out through EAPs in the early weeks of enrollment. A full-time student can receive up to $8,000 in EAPs during the first 13 consecutive weeks of a qualifying program, with no dollar cap after that as long as they remain eligible. A part-time student can receive up to $4,000 per 13-week enrollment period.⁹ If a full-time student takes a gap of 12 months or more without 13 consecutive weeks of enrollment, the $8,000 cap resets when they re-enroll.

Refund of Your Own Contributions Is Tax-Free

Your original contributions are a separate pool. Because you already paid tax on that money before putting it in, the subscriber can withdraw the contributions at any time without tax, whether the plan is active or being wound down.⁵ Refunded contributions are not reported as income.¹⁰ The subscriber can also hand those refunded contributions to the beneficiary, and the payment stays non-taxable in the student’s hands either way.¹¹

What If No One Goes to School

If the beneficiary does not enroll in post-secondary education, the earnings portion of the plan does not simply come back to you tax-free. It comes back as an Accumulated Income Payment (AIP), and AIPs are taxed twice: the subscriber includes the full amount as ordinary income for the year received, and pays an additional federal tax of 20% on top (12% for Quebec residents).¹² The extra tax is calculated on Form T1172 and is due by April 30 of the following year.⁵

You cannot request an AIP whenever you like. All of the following must be true:

The RESP has been open at least 10 years (the payment is made after the year that includes the plan’s 9th anniversary).
Every living beneficiary is at least 21 years old and is not currently eligible for an EAP.

An AIP can also be paid if the beneficiary has died, regardless of the plan’s age.⁵ Once the first AIP is paid, the plan must be closed by the end of February of the following year. Any unused CESG and CLB must be returned to the government.

Rolling Earnings Into an RRSP Avoids the AIP Tax

If you have unused RRSP contribution room, you can transfer up to $50,000 of RESP earnings into your own RRSP (or a spousal RRSP) instead of taking them as an AIP.¹³ The rolled-over amount escapes both the regular income tax and the 20% surtax. The subscriber files Form T1171 and directs the promoter to transfer the payment straight to the RRSP.¹²

Rolling Earnings Into an RDSP

If the beneficiary qualifies for the disability tax credit, RESP investment earnings can instead be rolled into a Registered Disability Savings Plan. The lifetime limit on amounts rolled into an RDSP is $200,000, and no grant is paid on the transferred amount.¹⁴ Any remaining CESG and CLB in the RESP must be repaid to the government, and the RESP must be closed.¹³

The 35-Year Deadline

An RESP must be closed by the last day of the 35th year after the year it was opened.¹⁵ The deadline extends to 40 years if the beneficiary is eligible for the disability tax credit. When the plan closes, any earnings that were not paid out as EAPs or rolled over properly fall under the AIP tax rules, so planning well before the deadline is what keeps the earnings from being taxed twice.

A Note for U.S. Persons

Canada’s tax-deferred treatment does not extend across the border. The IRS generally treats a Canadian RESP as a foreign trust, and a U.S. person who is a subscriber or beneficiary may need to file Form 3520 and Form 3520-A each year.¹⁶ Penalties for missed filings can be significant. If you carry both Canadian and U.S. tax obligations, get cross-border advice before opening or contributing to an RESP.

1
Canada Revenue Agency (CRA). Registered Education Savings Plans (RESPs)
2
Canada Revenue Agency. Registered Education Savings Plans Contributions
3
Justice Laws Website. Income Tax Act, RSC 1985, c 1 (5th Supp) – Section 146.1
4
Government of Canada. Registered Education Savings Plans and Related Benefits
5
Canada Revenue Agency. Registered Education Savings Plans Payments, Transferring and Rolling Over Registered Education Savings Plans Property
6
Canada.ca. T4A Slip – Information for Payers
7
Canada Revenue Agency. Line 30000 – Basic Personal Amount
8
Canada Revenue Agency (CRA). Tax Rates and Income Brackets for Individuals
9
Canada.ca. Registered Education Savings Plan (RESP) Bulletin No.1R3
10
Canada Revenue Agency. How a Registered Education Savings Plans Works
11
Government of Canada. Pay for Education Using the Registered Education Savings Plan
12
Canada Revenue Agency (CRA). RESP – Accumulated Income Payments
13
Government of Canada. Managing the Registered Education Savings Plan, Taxes and Transfers
14
Canada Revenue Agency. RDSP Limits, Transfers, and Rollovers
15
Canada.ca. Frequently Asked Questions for the Registered Education Savings Plans (RESPs)
16
IRS. About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts