The accumulated earnings withdrawn from RESP is taxable at marginal tax rate. Let’s figure out some more details on RESP in Canada.
RESP Canada
RESP which is a Registered Educational Savings Plan, is an investment plan like a tax-free savings account or a registered retirement savings plan that is registered with the federal government of Canada.
The sole intention of a RESP is to accumulate wealth for higher education purposes of the beneficiary. It could be used for college rent, tuition fees or college transportation or purchase of text books. Let’s find out the taxation rules of a RESP.
Is RESP taxable in Canada?
In the lifetime of a RESP, you can contribute a maximum of $50,000. You cannot claim tax deduction on the amounts you contribute to an RESP. However, the interest, income returns or any capital gains you earn within a RESP are not taxable until the funds are within the investment plan.
The funds can stay in a RESP for 36 years, after which you have to mandatorily take them out. When you take the funds out of RESP and use it for post-secondary education, the earnings are taxed at your marginal tax rate. We have illustrated the 2022 Canadian tax slab below:
- On the first $50,197: 15%
- On the next $50,195: 20.50%
- On the next $55,233: 26%
- On the next $66,083: 29%
- On anything above $221,708: 33%
If you do not plan to use the RESP funds for post-secondary education, you have to pay regular income tax plus a 20% penalty on the accumulated income. As in, this is the money you earned by investing $50,000 (maximum limit). You need not pay any taxes on the contributed amounts.
RESP Taxation
Taxation can be a tricky topic. If you have further questions, please contact the Canadian Revenue Agency number: 18009598281 or visit their website. You can also take consultation from a tax adviser to file your returns accurately.