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Last updated: February 05 2013
What Happens to Joint Subscribers When an RESP is Terminated?
What happens with accumulated income payments from a Registered Education Saving Plan (RESP) when the plan is a joint plan?
When both spouses contribute to a RESP for their children, they are “joint subscribers.” When an RESP is terminated and amounts are not paid to the child as Educational Assistance Payments, the amounts paid consist of the following:
• Return of contributions to the subscriber(s) which are not taxable;
• Return of government contributions — Canada Learning Bond and Canada Education Savings Grant as well as any provincial assistance — to the government;
• Accumulated Income Payments (AIPs) paid to the subscriber(s);
The AIPs are taxable to the subscriber(s) and subject to an additional tax of 20% of the AIP. This additional tax is waived to the extent that the AIPs are contributed to the recipient’s RRSP or spousal RRSP. Beginning in 2014, the additional tax is waived if the AIPs are contributed to a Registered Disability Savings Plan (RDSP).
The only stipulation in the Income Tax Act regarding making AIPs to joint subscribers is that AIP payments cannot be paid jointly. This may mean that the RESP provider will make the payment to only one of the subscribers or make separate payments to each of the joint subscribers. The recipient of the AIP is the taxpayer who must include the AIP in income and must pay the additional tax if the funds are not contributed to an RRSP.
