Tuition Fees Eligible for RRSP LLP Withdrawals

Are your tuition fees for summer school eligible for RRSP Lifelong Learning Plan (LLP) withdrawals?  It’s an important question especially if you are looking for funding for your professional training this year.  A tax  free withdrawal from your RRSP can be made, provided, however, that you follow the 10 year repayment rules and organize your study time to qualify.  Here’s what you need to know:

Excerpted from EverGreen Explanatory Notes

The Lifelong Learning Plan

The Lifelong Learning Plan is a federal initiative that allows individuals to withdraw up to $10,000 per calendar year, with a maximum of $20,000 over the lifetime of the program, from their RRSPs to fund education or training for themselves or their spouse/common-law partner.

Funds are withdrawn from the RRSP using Form RC96 Lifelong Learning Plan (LLP) Request to withdraw funds from an RRSP.

The main advantage of the LLP is that the withdrawn RRSP amounts are not taxed at the time of withdrawal provided they are repaid to the RRSP within a specific time frame.

Who Qualifies?  To participate in the LLP, the individual must:

• Be enrolled in a qualifying educational program (typically full-time, but exceptions exist for persons with disabilities who qualify for the disability amount).
• The course or program must run for at least three consecutive months, with at least 10 hours per week  spent on coursework, which can be taken online or by distance education, listening tolectures, and doing practical work.
• Be a Canadian resident at the time of withdrawal and until the funds are used.
• Withdraw the funds in the same year or within March of the following year for the purpose of education.

Importantly, the LLP can be used for either the individual or their spouse/common-law partner, but not for children. Also, it is not necessary that the taxpayer actually use the funds borrowed for tuition or education costs, only that they become a full-time student who meets the 10 hours a week of course time.  The educational institution determines who is a full-time or part-time student.  People with disabilities may qualify if they are part-time students.

Repayment Requirements

Repaying the LLP is essential to avoid tax consequences.

The funds must be repaid back into the RRSP, over a period not exceeding 10 years, beginning in the fifth calendar year after the withdrawal or the year after the student ceases to be a full-time student for at least three months in the year, whichever comes first.

The minimum repayment is 1/10^th of the total amount withdrawn for each year of the repayment period. Amounts that are due and not repaid are included in the taxpayer's income under S. 56(1)(h.2) in the year they are due.

Taxpayers are free to participate in the plan again once they have repaid the amount borrowed.

Example: If a taxpayer withdrew $20,000 under the LLP, the repayment is  $2,000 each year starting the fifth year. If the amount is less, the unpaid portion is included in the taxable income for that year.

Bottom Line:  The Lifelong Learning Plan is a powerful financial tool  for Canadians looking to enhance their career prospects through education  by allowing for tax-free RRSP withdrawals for full-time learning. The LLP supports professional growth, career transition, and the pursuit of new skills and unlike student loans, LLP withdrawals do not accrue interest, and repayment is spread over 10 years.   Knowledge Bureau Fast Track Programs will qualify.

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