RESP When You Leave Canada: Non-Resident Grants and Withdrawals

What happens to an RESP if you leave Canada?

The RESP can stay open, and leaving Canada does not trigger departure tax on it. What changes is who can put money in, who can receive the grants, and who can take out the growth: each of those rules turns on residence in Canada.

What makes a case not simple: two subscribers living in different countries, a US citizen in the family, a child who returns to Canada to study while the parents stay abroad, or a plan nearing its deadline. Each changes who can receive what. Decisions made before you leave, such as which subscriber holds the plan and when contributions come out, are hard to undo afterwards.

What to gather: the plan's latest statement split into contributions, grants (federal and provincial) and growth; the date the plan was opened; each subscriber's and the child's country of residence and moving date; who the subscribers are (parents, grandparents); and the child's study plans.

Can we keep contributing to an RESP once the child is non-resident?

No. The Income Tax Act (paragraph 146.1(2)(g.3)) lets an RESP accept a contribution for a beneficiary only if the child's Social Insurance Number has been given to the plan and the child is resident in Canada when the contribution is made. The one exception is a direct transfer from another RESP for the same child.

The rule looks at the child, not the parent. The plan's terms must refuse a contribution for a child who is non-resident; tell the provider when the child stops being resident. The same paragraph bars naming a non-resident child as a new beneficiary, unless the designation comes with a transfer from another RESP in which the child was already a beneficiary.

What happens to the Canada Education Savings Grant and Canada Learning Bond?

Grants already in the plan stay there: leaving Canada is not, on its own, one of the events that makes them repayable. But no new Canada Education Savings Grant is paid on contributions while the child is non-resident (IC93-3R2, paragraph 24), no Canada Learning Bond is paid into the plan while the child is non-resident (Canada Education Savings Act, section 7), and the CRA states that a student must be resident in Canada to receive the grant or the Canada Learning Bond as part of an educational assistance payment (CRA).

So while the student is non-resident, EAPs can pay out growth and contributions can come back, but not the federal grant or bond. Residence is tested at each payment, so a student who becomes resident later can receive the grant in later EAPs. Grants go back to the government if the child does not go on to post-secondary studies, if the plan is closed, or, in some cases, when contributions are withdrawn (IC93-3R2, paragraphs 23, 25 and 53). The provider handles the repayment.

Provincial programs, such as the Quebec Education Savings Incentive and the British Columbia Training and Education Savings Grant, have their own residence rules (RC4092). Ask the provider how each applies.

My child studies abroad: do RESP payments still count?

Yes, if the school and course qualify. An educational assistance payment (EAP), the payment of growth and grants to a student, can be made for study outside Canada at:

• a university, where the student is enrolled full time in a course of at least 3 consecutive weeks; or
• a university, college or other institution offering post-secondary courses, where the course runs at least 13 consecutive weeks.

These conditions come from the definition of "post-secondary educational institution" in section 146.1. The school does not need to be on a list (IC93-3R2, paragraph 43). Keep the enrolment letter and the course dates for the provider.

How is an EAP taxed if the student is a non-resident?

The EAP is the student's income, not the parent's (RC4092). For a non-resident student, the Income Tax Act (paragraph 212(1)(r)) applies Part XIII tax of 25%, withheld by the plan. This is a final tax: the section 217 election that lets some non-residents file a return to lower Part XIII tax does not cover RESP payments (section 217), so the student does not file a Canadian return to recover it.

A tax treaty may lower that rate. The CRA's treaty-rate circular (IC76-12R8) does not name RESP payments, so the rate depends on how the treaty with the student's country treats them; check before relying on a lower rate. See non-resident tax rates in Canada. For the slip a non-resident student receives, see the NR4 slip guide. The student's new country may tax the payment too.

Can I get my RESP contributions back while living abroad?

Yes. Contributions can be returned to the subscriber without tax, when the plan ends or earlier if its terms allow, and they are not reported as income (CRA). Residence does not change this for Canadian tax. Your new country may see it differently.

The catch is the grants. Withdrawing contributions when no beneficiary can receive an EAP triggers grant repayment (IC93-3R2, paragraph 25). Ask the provider what a withdrawal would cost in grants before you request one.

The child will not study: can a non-resident subscriber take the growth?

No. Growth paid to a subscriber, an accumulated income payment (AIP), is allowed only to a subscriber resident in Canada when it is paid (section 146.1, paragraph 146.1(2)(d.1)). Even for a resident, an AIP needs one of these: the payment is made after the 9th year following the year the plan was opened, and every living person who is or was a beneficiary is at least 21 and not eligible for an EAP; the plan is in its final year; or every beneficiary has died. The CRA can waive the 9-year and age-21 tests when a beneficiary's severe and prolonged mental impairment prevents post-secondary study (subsection 146.1(2.2)).

If a subscriber still lives in Canada, such as a parent who stayed or a grandparent who opened the plan, the AIP can be paid to that subscriber if the other conditions are met. It cannot be paid to two subscribers jointly.

A resident subscriber pays regular tax plus an additional 20% (12% for residents of Quebec) on an AIP, and can shelter up to $50,000 over a lifetime by contributing it to an RRSP with room (CRA). A subscriber who lives abroad can use neither the AIP nor the RRSP transfer.

Growth that cannot go anywhere else may be paid to a designated educational institution in Canada, one of the purposes the Act allows (section 146.1, definition of "trust"). An RESP must end by the end of its 35th year after the year it was opened (40th for a single-beneficiary plan for someone eligible for the disability tax credit), so waiting has a limit.

Keep it, collapse it, or wait until we return?

Each path trades grants and growth against time and the family's plans. The plan's own terms also apply.

Whether a child who comes back to Canada for school becomes resident depends on the facts, not on enrolment alone.

Moving back to Canada later: do contributions and grants resume?

Yes, the residence rules work both ways: once the child is resident again and has a SIN, contributions can resume, and a student who is resident when an EAP is paid can receive the grant already in the plan. New grant is another matter: grant room builds for each year the child is resident in Canada for at least part of the year (a year spent entirely abroad adds none), the grant stops at the end of the year the child turns 17, and a child of 16 or 17 earns it only if enough was contributed in earlier years (IC93-3R2, paragraphs 22 and 24). Once the subscriber is resident again, an AIP becomes possible if its conditions are met; after the first AIP, the plan must close before March of the following year (section 146.1, paragraph 146.1(2)(i.1)). For the rest of the return to Canada, see returning to Canada after years abroad.

Example

These examples are illustrative and use Canadian dollars.

Child studies at a university abroad

An RESP holds C$50,000: C$30,000 of contributions, C$6,000 of federal grant and C$14,000 of growth. The family moves abroad and the child, still non-resident, enrolls full time at a university there. The C$30,000 of contributions can come back to the parent tax-free or go to the student. The C$14,000 of growth is paid to the student as EAPs, with 25% withheld (C$3,500 if paid in full) unless a treaty lowers it. The C$6,000 grant cannot be paid to the student while non-resident, and goes back if it is never paid out.

Family returns before university

Same plan. The family moves back to Canada two years before the child starts university.

• Abroad: no contributions, no new grant.
• Back in Canada: the child is resident with a SIN, so contributions can resume. New grant on them depends on the child's age: it ends the year the child turns 17, and at 16 or 17 it is paid only if the earlier-contribution tests are met.
• University: the student, now resident, can receive EAPs that include the C$6,000 grant, taxed as the student's own income.

Child decides not to study

Same plan, parents still abroad, child now 22. The parents can take back the C$30,000 of contributions tax-free; the C$6,000 grant goes back. The C$14,000 of growth cannot be paid to them as an AIP while they are non-resident. They can leave it in the plan until they are resident again, before the plan's deadline, or have it paid to a designated educational institution in Canada. If a subscriber still lives in Canada, the AIP can be paid to that subscriber.

Different for you?

• Someone in the family is a US citizen, or you are moving to the US: see RESPs and US tax for US-citizen families and RESPs after moving to the US, and get individual tax help.
• One subscriber stays in Canada while the other leaves: only the subscriber still resident in Canada can receive the growth; see when your family stays in Canada and get individual tax help.
• Your child comes back to Canada to study while you stay abroad: whether the student is resident decides whether the grant can be paid; get individual tax help.
• You are filing your departure-year return, or hold other investments or property: departure tax may apply to them; see leaving Canada and get individual tax help.
• Your child has an RDSP too: see RDSPs when you leave Canada.
• The student received an NR4 or wants a treaty rate: see the NR4 slip and non-resident tax rates.
• The plan is near its deadline, or you need to decide before you leave: the order of withdrawals and moves can cost grants or strand growth; get individual tax help.