ACCESSING REGISTERED RETIREMENT SAVINGS PLANS (RRSPs) TO EASE COST OF EDUCATION

Question: Can I access my RRSPs to pay for my education?

Answer: The Lifelong Learning Plan (LLP) announced in the 1998 Federal Budget became effective on Jan. 1, 1999. The LLP is similar to the Home Buyer's Plan (HBP) and allows taxpayers to make RRSP withdrawals to fund training and education. A general review of the rules is outlined below.

With an LLP, you can make tax-free withdrawals from your RRSP without withholding tax to fund full-time education and training for either yourself or your spouse or common-law partner (but not both at the same time under one withdrawal plan). The withdrawal cannot be for the education of anyone else, including your children. To be eligible for withdrawal, the LLP student must be enrolled or be enrolling in a "qualifying educational program" at a "designated educational institution". A "qualifying educational program" is one where the student must spend at least 10 hours per week on course attendance or work. This program must last for at least three months. A "designated educational institution" is a college, university or other educational institution that qualifies for purposes of the education amount claimed on the student's tax return. There are special rules if the student is disabled.

The maximum withdrawal is $20,000 over four years, provided the student continues in a qualifying educational program. The annual maximum withdrawal is $10,000. The student must be enrolled in a "qualifying educational program" that begins before March of the year following the withdrawal.

Withdrawals will not be allowed in the year repayment starts. Withdrawals can only be made by the owner of the RRSP. Each withdrawal must be made using Canada Revenue Agency form RC96, Lifelong Learning Plan (LLP), Request to Withdraw Funds from an RRSP. The annuitant making the withdrawal must be a Canadian resident and must certify that the student is enrolled in a "qualifying educational program" at a "designated educational institution".

Unlike the HBP Plan, the withdrawal will be reported to the taxpayer of a T4RSP slip. Canada Revenue Agency will revise the T4RSP to identify a LLP withdrawal. Taxpayers who make or made withdrawals must file a tax return and complete Schedule 7 every year until the entire withdrawal is repaid to an RRSP. Withdrawals must be repaid at a rate of at least 10 per cent per year over a period of 10 years. Repayment must start not later than five years after the date of the initial withdrawal. As with HBP, withdrawals and repayments will be allowed to any RRSP under which the taxpayer making the withdrawal is the annuitant (i.e. cannot be made to a spousal RRSP and cannot claim a contribution made by annuitant's spouse). Unpaid withdrawals will be added to the income of the taxpayer who made the withdrawal. Locked-in RRSP funds do not qualify for withdrawal under the Lifelong Learning Plan.

Generally, the entire outstanding balance has to be repaid with 60 days of the time an annuitant is no longer a resident of Canada or the entire balance will be added to the annuitant's income. If there is any outstanding balance at the end of the year in which the annuitant reaches age 69, the amount that would have been the annual payment each year will be added to the annuitant's income.

Information about the LLP can be found in Canada Revenue Agency's guide, RC4112, Lifelong Learning Plan (LLP) which is available from your local Canada Revenue Agency District Taxation Office.

This information is general in nature, and is intended for educational purposes only. For specific situations you should consult the appropriate legal, accounting or tax expert.