If a beneficiary named by a subscriber does not pursue higher education, and no replacement beneficiary has been named, under certain conditions the subscriber may receive the investment income from the investment.
An accumulated income payment (AIP) is an amount, usually paid to the subscriber, drawn from the money earned from contributions and/or grants paid into an RESP. An AIP does not include
- Education assistance payments (EAPs)
- Payments to a designated educational institution in Canada
- The refund of contributions to the subscriber
- Transfers to another RESP
- Repayments of CESGs
Once an AIP is processed on an RESP account, the account cannot be transferred to another RESP, and it must be closed by the last business day of February in the year following the AIP.
AIPs may be allowed when the following conditions are met:
- The recipient is a resident of Canada.
- The payment is made to, or on behalf of, a person and not jointly to more than one person.
AND any one of the following three conditions must also be met:
- The plan has been in existence for at least 10 years, and all beneficiaries under the plan are at least 21 years of age and not eligible for an EAP;
- The plan has existed for 36 years;
- All of the beneficiaries are deceased.
Rollover of AIP to an RRSP
- A subscriber can transfer the AIP to their RRSP or Spousal RRSP, provided contribution room is available.
- The subscriber must be the annuitant (or the contributor, if a Spousal RRSP) to the RRSP.
- The lifetime maximum for AIP transfers to an RRSP is $50,000.
- A 20% penalty withholding tax will apply unless Form T1171: Tax Withholding Waiver on Accumulated Income Payments is completed.
- A T4A tax slip reflecting the gross amount of withdrawals will be issued from the RESP account.
- A contribution receipt for the amount of the rollover will be issued from the RRSP account.
Note: In the case of joint subscribers, the rollover can be made only to the RRSP of one of the subscribers.
- A subscriber can redeem the AIP as cash.
- A 20% penalty tax will be withheld at source.
- A T4A tax slip will be issued to the subscriber for the full amount of the AIP redemption.
Payment to a designated educational institution
- A subscriber can make an AIP payable to a designated educational institution.
- This is not considered a donation; therefore, a tax receipt will not be issued.
- The subscriber does not have to qualify for an AIP if they exercise this option; however, the beneficiary will no longer be eligible for an EAP.