RESP Withdrawals: How Educational Assistance Payments Are Taxed in Canada

A Registered Education Savings Plan (RESP) is one of the most tax-efficient ways to save for a child’s post-secondary education in Canada. The government tops up your contributions with grants, and investment growth is tax-sheltered. But when the money comes out, the tax treatment depends entirely on which type of withdrawal you take — and getting this wrong can mean paying thousands more than necessary.

The Three Types of RESP Withdrawals

Every dollar inside an RESP falls into one of three buckets, and each has its own withdrawal rules:

Withdrawal Type	What It Contains	Taxed To	Tax Treatment
PSE (Post-Secondary Education)	Your original contributions	No one	Tax-free — this was after-tax money going in
EAP (Educational Assistance Payment)	Government grants (CESG, CLB) + investment growth	The student	Included in student’s taxable income
AIP (Accumulated Income Payment)	Investment growth (when no student qualifies)	The subscriber (parent)	Taxable at marginal rate + 20% additional tax

PSE Withdrawals: Your Money Back, Tax-Free

Post-Secondary Education withdrawals return your original contributions. Since you contributed with after-tax dollars, there is no tax on withdrawal. There is no annual limit on PSE withdrawals — you can take back your full contribution amount at any time once the beneficiary is enrolled in a qualifying program.

EAPs: The Heart of the Tax Advantage

Educational Assistance Payments are where the real tax planning happens. EAPs consist of the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), provincial grants, and all investment growth accumulated in the plan.

The critical feature: EAPs are taxable in the student’s hands, not the subscriber’s. This is advantageous because most full-time students have little or no other income, meaning the EAP may be partially or fully tax-free.

For 2026, the federal basic personal amount is $16,129. A student with no other income can receive up to this amount in EAPs before owing any federal tax. When you add provincial basic personal amounts and tuition tax credits, many students can receive substantially more before any tax is payable.

EAP limits: In the first 13 consecutive weeks of enrollment, the maximum EAP is $8,000 for full-time students ($4,000 for part-time). After that initial period, there is no limit — you can withdraw any amount as long as the student remains enrolled.

AIPs: The Last Resort

Accumulated Income Payments are only available when no beneficiary will use the RESP for education. AIPs return the investment growth to the subscriber, but at a steep cost:

• The full amount is included in the subscriber’s taxable income
• An additional 20% tax applies on top of regular income tax
• Government grants (CESG, CLB) must be repaid to the government — they cannot come out as AIPs

To be eligible for an AIP, the RESP must have been open for at least 10 years and all beneficiaries must be at least 21 and not pursuing post-secondary education (or the plan has existed for 35 years).

How Much Tax Will a Student Pay on EAPs?

The tax payable depends on the student’s total income for the year. Here is what a student in Ontario would owe on various levels of EAP income in 2026, assuming the EAP is their only income and they have no tuition credits:

Student’s Total Income (all EAP)	Federal Tax	Ontario Tax	Total Tax	Effective Rate
$16,129 or less	$0	$0	$0	0%
$20,000	$581	$214	$795	4.0%
$25,000	$1,331	$721	$2,052	8.2%
$30,000	$2,081	$1,228	$3,309	11.0%

In practice, most students also claim the tuition tax credit, which further reduces tax. A student paying $8,000 per year in tuition generates a federal credit of $1,200 (15% of $8,000) plus a provincial credit, effectively sheltering even more EAP income from tax.

Worked Example: $50,000 RESP Over Four Years

The setup: Sarah opened an RESP for her daughter Maya 18 years ago. The account now holds $50,000, made up of:

• $20,000 in contributions (Sarah’s money)
• $10,000 in CESG (government grants)
• $20,000 in investment growth

Maya is starting a four-year degree program in September 2026. Tuition is $7,500 per year. Maya has no summer job income (for simplicity).

Optimal withdrawal strategy:

Year	PSE (Contributions)	EAP (Grants + Growth)	Total Withdrawn	Maya’s Taxable Income	Approx. Tax (Ontario)
Year 1	$5,000	$7,500	$12,500	$7,500	$0
Year 2	$5,000	$7,500	$12,500	$7,500	$0
Year 3	$5,000	$7,500	$12,500	$7,500	$0
Year 4	$5,000	$7,500	$12,500	$7,500	$0
Total	$20,000	$30,000	$50,000	—	$0

By spreading the $30,000 in EAPs evenly over four years at $7,500 per year, Maya stays well below the basic personal amount each year. The entire $50,000 comes out completely tax-free.

What if it were all withdrawn in one year? Maya would have $30,000 in taxable EAP income, resulting in approximately $3,309 in tax (Ontario) — money that is easily avoided with basic planning.

Key point: Always take PSE withdrawals alongside EAPs. The PSE portion is tax-free regardless, so using it stretches each year’s total withdrawal while keeping the taxable EAP portion low.

What If the Student Doesn’t Go to School?

If Maya decides not to pursue post-secondary education, Sarah has several options:

1. Change the beneficiary: Transfer the RESP to another child (a sibling, niece, nephew, or other qualifying individual). Grants may be retained if the new beneficiary is under 21.

2. Transfer growth to the subscriber’s RRSP: Up to $50,000 of accumulated income can be transferred to the subscriber’s RRSP (or spouse’s RRSP), provided there is sufficient contribution room. This avoids the 20% additional tax and the regular income tax — the amount is deducted as an RRSP contribution.

3. Take an AIP: If neither option above works, Sarah can withdraw the growth as an AIP. On $20,000 of growth, if Sarah is in a 43.41% combined marginal bracket (Ontario), she would pay:

   • Regular tax: $20,000 x 43.41% = $8,682
   • Additional 20% tax: $20,000 x 20% = $4,000
   • Total tax: $12,682 (63.4% effective rate)
   • Plus, the $10,000 CESG is returned to the government

The RRSP transfer is almost always the best fallback. If Sarah has $50,000 in RRSP room, she can shelter the entire $20,000 of growth and avoid all tax.

Key Takeaways

• PSE withdrawals (return of contributions) are always tax-free — withdraw these alongside EAPs to maximize total cash flow each year.
• EAPs are taxed in the student’s hands. Most students pay little or no tax thanks to the basic personal amount ($16,129 in 2026) and the tuition tax credit.
• Spread EAP withdrawals over all years of study to keep the student’s income low each year.
• AIPs are punitive — the 20% additional tax on top of regular rates makes them a last resort. Transfer to an RRSP instead if possible.
• Use the RESP Calculator to model your specific withdrawal strategy, and the Income Tax Calculator to estimate the student’s tax at different EAP levels.