Payments from an RESP
Source deductions of income tax
Payments made under a registered education savings plan (RESP), other than an educational assistance payment or a refund of contributions, are subject to a source deduction of income tax of 16% or 20%, as applicable.
However, the first $50,000 is not subject to source deductions of income tax provided the following conditions are met:
- the payment from an RESP is an accumulated income payment that is made to one of the following persons:
- a subscriber of an RESP,
- an individual or public authority who, before the accumulated income payment, acquired from a public authority rights as sole subscriber of the plan, under a written agreement,
- an individual who, before the accumulated income payment, acquired the subscriber's rights under the plan, pursuant to a decree, order or judgment of a competent tribunal, or under a written agreement relating to a partition of property between the individual and a subscriber of the plan in settlement of rights arising out of, or on the breakdown of their marriage, or de facto or civil union,
- in the absence of such persons, a person who was the spouse of one of the above persons;
- the first $50,000 was transferred to the registered retirement savings plan (RRSP) of an annuitant who is either the beneficiary of the accumulated income payment or the beneficiary's spouse; and
- you have reasonable grounds to believe that the beneficiary of the accumulated income payment may deduct the amount transferred to the RRSP from his or her income for the year.
If you make a payment under an RESP and are required to withhold 16% or 20% income tax from all or a portion of the payment, you must also withhold a special income tax of 8%.
Example – Calculation of the source deduction of income tax on a payment from an RESP
|Total income tax to withhold||=||$5,600|
|Income tax on the single payment||($70,000 − $50,000) × 20%||$4,000|
|Additional income tax||$20,000 × 8%||+||$1,600|
However, a payment from an RESP is not subject to the source deduction of income tax of 16% or 20% if the amount is transferred directly to a registered retirement savings plan (RRSP), a registered retirement income fund (RRIF), a deferred profit-sharing plan (DPSP) or a registered pension plan (RPP). If only a portion of the payment is transferred directly to such a plan, you must withhold income tax from the portion that is not transferred directly.
Other source deductions and employer contributions
Note that educational assistance payments and refunds of contributions to an RESP are not subject to source deductions and employer contributions.