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Discussion Starter #1
Hi all, I'm having trouble finding a clear answer from Google on this one, so hoping someone here knows...

I have a self directed family plan RESP account for my two kids, and there is more money in there than they are going to need for school. All of the funds currently in the RESP came from my salary over the years, as my wife has been a stay at home mom. When I withdraw annually from the RESP, I am given the option to deposit the funds into either my non-registered account, or my wife's. Since only part of the money would be used for university, the remainder is ours to invest.

Since my wife is in a lower tax bracket, it would make sense from a tax perspective to move the money from the RESP to her non-registered account, but since I earned the money before it went into the RESP, are we going to have an issue with attribution?
 

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Discussion Starter #2 (Edited)
By the way, I realize that the portion of the withdrawal that is CESG and investment gains will be taxed as income in my child's name. My question is regarding attribution related to any future dividends or capital gains earned on the originally contributed money after it has been withdrawn from the RESP.
 

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I would say that technically, yes, it should be attributed back to the original contributor. However, the contributions likely started many years ago and to an RESP, so maybe you could split it 50/50 into a non-registered account - but probably not giving the whole amount to her. If your wife made even a little bit of income during the time of the contributions this would be more possible, but if she made no income at all it would be hard to substantiate. Those are just my thoughts...
 

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I have a self directed family plan RESP account for my two kids, and there is more money in there than they are going to need for school. All of the funds currently in the RESP came from my salary over the years, as my wife has been a stay at home mom. When I withdraw annually from the RESP, I am given the option to deposit the funds into either my non-registered account, or my wife's.
It sounds like you and your wife are joint subscribers on the RESP. That being the case, I suspect either one of you can use the funds.

The reason I say this is because it is permissible to change subscribers on RESPs, so long as the beneficiary is the same. For example, a single parent can add the name of their new spouse as a subscriber. Or, if a subscriber dies a new one can be named rather than having the RESP sent to the estate.

In my case, my MIL started an RESP for my child's first four years. Then I stared my own RESP. We were able to transfer MIL's RESP into the one I started for ease of management. I became the sole subscriber. Any funds withdrawn from the account have gone to my brokerage account.

I doubt very much the CRA would ever care to examine this deeper, especially if the plan has been in place for a decade or more. After all, the money is being withdrawn to pay for school costs, which could be $20K a year -- and actual costs don't have to be proven. Any excess beyond the costs would certainly be a modest number.

Frequently asked questions for the Registered Education Savings Plans (RESPs) - Canada.ca
8(d) Can an RESP be transferred to a plan with a different subscriber but the same beneficiary? For example, can a grandmother who has an RESP for her granddaughter transfer this plan to her daughter's plan for the same child?
Yes. Transfer rules would permit such transfer. The rules also specify that if the beneficiary under the receiving plan was, immediately before the transfer, a beneficiary under the transferring plan, the contribution history would not apply to the receiving plan for excess contributions purposes. This would apply for family and non-family plans.
 

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A few other considerations/points:
  • The money initial contributions are not taxable, only the gains and the grants are taxable. It would be advisable to for the child to pull out all of the grants first (only the can access the grants), then the gains in their name first as their tax rate is most likely lower than either of the parents
  • The contribution amount can go back to the parents tax free
  • The remaining gains can be put into the parents RRSP if there is room. I would do this before putting it in my unregistered account. My RRSP's are maxed right now, but as the kids get closer to the end of University, I will adjust our contributions so we have room to move over any remaining gains if needed.
  • Lastly, if there is still remaining gains which you cannot defer through an RRSP, I think you hare supposed to 'split it' I am not sure though. My spouse and I are almost always in a similar bracket so everyone always goes 50-50 for us because it's easier. Might be different if there were huge difference in income.
 

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  • The money initial contributions are not taxable, only the gains and the grants are taxable. It would be advisable to for the child to pull out all of the grants first (only the can access the grants), then the gains in their name first as their tax rate is most likely lower than either of the parents
A clarification: You can't pull out the grants alone. Grants can only be withdrawn as part of an EAP (Educational Assistance Payment), which proportions the withdrawals between grant money and account earnings.

Also, the subscriber can direct EAPs to their own account (assuming the beneficiary meets the enrollment criteria); there is no stipulation EAPs go directly to the beneficiary or to the school.

Educational Assistance Payments (EAPs) - Canada.ca
 

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Has there ever been any stories or CRA cases where you need to prove how the money was spent? With covid kicking around, I suspect many students will not have the burden of residence and or food costs. Many are learning from home.

what if a four year degree costs $25,000 But you have over $50,000 in a RESP? i Know you don’t provide proof of expenses to the plan administrator. Could you withdraw $12,500 each year and be done with it?

has CRA ever asked for proof? I know the informal list of eligible expenses is quite long.
 

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Has there ever been any stories or CRA cases where you need to prove how the money was spent? With covid kicking around, I suspect many students will not have the burden of residence and or food costs. Many are learning from home.

what if a four year degree costs $25,000 But you have over $50,000 in a RESP? i Know you don’t provide proof of expenses to the plan administrator. Could you withdraw $12,500 each year and be done with it?

has CRA ever asked for proof? I know the informal list of eligible expenses is quite long.
I have never heard any stories about CRA investigations. This may be because the administrative burden of seeking proof would far outweigh any recoveries via increased tax. The only criteria appear to be: a) proof of enrollment and b) only $5,000 in the first 13 weeks. After that, assuming enrollment continues, there is no maximum that I am aware of.

From the Royal Bank:

Fast Fact: RESP money can be used for tuition, accommodation, books or any other expense related to your child's post-secondary education.

For students enrolled in a full-time program, there's a limit of $5,000 on EAP withdrawals during the first 13 weeks of a program. Once those 13 weeks are up, there's no limit on additional EAP amounts that can be withdrawn.
 

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A clarification: You can't pull out the grants alone. Grants can only be withdrawn as part of an EAP (Educational Assistance Payment), which proportions the withdrawals between grant money and account earnings.

Also, the subscriber can direct EAPs to their own account (assuming the beneficiary meets the enrollment criteria); there is no stipulation EAPs go directly to the beneficiary or to the school.

Educational Assistance Payments (EAPs) - Canada.ca
You are correct, the child needs to be enrolled in a qualified program. I made the assumption that the kids where going to university, so that wouldn't be an issue. Grants should be the first piece pulled out assuming the person is in a program.

Has there ever been any stories or CRA cases where you need to prove how the money was spent? With covid kicking around, I suspect many students will not have the burden of residence and or food costs. Many are learning from home.

what if a four year degree costs $25,000 But you have over $50,000 in a RESP? i Know you don’t provide proof of expenses to the plan administrator. Could you withdraw $12,500 each year and be done with it?

has CRA ever asked for proof? I know the informal list of eligible expenses is quite long.
Once you pass the initial limit of $5k to withdraw, it's pretty easy to withdraw the rest. I know many students where their were pulling out money for living expenses even while living at home. Now that I think about it, this would be a better strategy to just pull out all of the money at the lower taxes rates from the kids while they are in school, even if it's more than what they need for tuition and books. Take two kids and divide it out over their two educations.
 

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Why can't the kid pull out all the money in their name, pay the taxes as appropriate and then give the excess back to parents? RESPs should be considered as a family planning tool to minimize taxes paid by the entire family.
Even if the kid pulls out 40 or 50K a year, with tuition credits and personal exemptions, their average tax rate is going to be way less than yours. Who cares if they don't need it all. There's no limit. The money is for expenses will IN school. Not expenses FOR school.
 

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Why can't the kid pull out all the money in their name, pay the taxes as appropriate and then give the excess back to parents? RESPs should be considered as a family planning tool to minimize taxes paid by the entire family.
Even if the kid pulls out 40 or 50K a year, with tuition credits and personal exemptions, their average tax rate is going to be way less than yours. Who cares if they don't need it all. There's no limit. The money is for expenses will IN school. Not expenses FOR school.
Families can absolutely do this.
It helps to be well off enough to juggle money around, but RESPs can indeed be a family planning tax tool.
However, pulling out $50K in one shot is unlikely to be optimal tax-wise, and it may well trigger a request from your FI for some proof.

The following is from RBC:

If you are requesting an EAP of $20,000 or greater, an itemized breakdown of expenses must accompany the Proof of Enrolment and EAP Withdrawal form. This is to determine the reasonableness of expenses as per CRA policy.
 

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The following is from RBC:

If you are requesting an EAP of $20,000 or greater, an itemized breakdown of expenses must accompany the Proof of Enrolment and EAP Withdrawal form. This is to determine the reasonableness of expenses as per CRA policy.
It's indexed, I think it's closer to 24 or 25K limit now. The itemized breakdown, etc is dependent on the RESP provider. Some are more lenient than others.
 

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Discussion Starter #14
Thanks all for your responses. To clarify, we have sufficient funds through normal cashflow to cover university costs as they come up, so there is no direct correlation between RESP withdrawals and tuition fees paid out. I really am just looking to drain the RESP in a tax optimal way for our family as a whole while our kids are in university.

Sounds like I should be fine to withdraw funds from the RESP into my wife's non-registered investing account, even though the majority came from my earnings over the last 18+ years.
 

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Thanks all for your responses. To clarify, we have sufficient funds through normal cashflow to cover university costs as they come up, so there is no direct correlation between RESP withdrawals and tuition fees paid out. I really am just looking to drain the RESP in a tax optimal way for our family as a whole while our kids are in university.

Sounds like I should be fine to withdraw funds from the RESP into my wife's non-registered investing account, even though the majority came from my earnings over the last 18+ years.
Would this be better than pulling the amount into your child's account and having the child return you the money. I am making the assumption that with your child tax credits, and low income rate, you child would make less than your wife. I could be wrong though in your specific scenario.
 

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Would this be better than pulling the amount into your child's account and having the child return you the money. I am making the assumption that with your child tax credits, and low income rate, you child would make less than your wife. I could be wrong though in your specific scenario.
The child reports the income and pays the tax (if any) on any EAP withdrawals. It doesn't matter whose account the money flows to. Withdrawing it to mom's account doesn't affect tax reporting.
The presumption is that the money is being used to pay education expenses. It therefore doesn't matter whether the child pays those expenses directly, or if mom "pays" them.
 

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The child reports the income and pays the tax (if any) on any EAP withdrawals. It doesn't matter whose account the money flows to. Withdrawing it to mom's account doesn't affect tax reporting.
The presumption is that the money is being used to pay education expenses. It therefore doesn't matter whether the child pays those expenses directly, or if mom "pays" them.
I read OP's post differently. I thought he was going to withdraw the money under his wifes name (which can too), but that didn't make sense. You explaination makes sense. thx
 

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Would this be better than pulling the amount into your child's account and having the child return you the money. I am making the assumption that with your child tax credits, and low income rate, you child would make less than your wife. I could be wrong though in your specific scenario.
Yes it would. Like he said - He wants all the money withdrawn to go to his lower income wife's taxable account, and he will pay all tuition costs he intends to (I guess this would need to at least be as much as the EAP amount to stay within the RESP rules?) out of his own salary and chequing account.

I believe this is not technically above board - Attribution rules should apply. But likely are untraceable.

Same concept applies to depositing the proceeds of a large sale. Selling the family car that the husband paid for 5 years ago? Deposit the proceeds into the wife's account. Profits from a sale of your principle residence that aren't rolled into a new house purchase? proceeds into the wife's account.

No different than just gifting your wife money directly and investing it - attribution rules apply. Only the above transactions occur over many years and are difficult to follow. Counting on the fact that CRA won't care to do the forensic accounting (probably true).
 
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