The Lifelong Learning Plan allows you to withdraw funds from your RRSP to finance full time educational pursuits for yourself or your spouse, without including the withdrawal in income.
Each spouse can finance only one person at a time, but both spouses can finance the same person.
The eligible student must commence the qualifying program by the end of March following the year in which the withdrawal was made.
You can participate in this Plan more than once, but you cannot start a new withdrawal until the calendar year following the year in which a previous withdrawal plan has been fully repaid.
You or your spouse must be enrolled as a full time student at an “eligible educational institution” in a “qualifying educational program” of at least three months duration.The full time requirement is waived for disabled persons.
You may withdraw up to $10,000 per year, to a maximum of $20,000 over a period of up to four calendar years.
Form RC96 is used to qualify the withdrawal as non-taxable.
A special catch applies when contributions are made within 90 days of a Plan withdrawal. These rules parallel those under the Home Buyer’s Plan.
The government will report the annual repayment obligations to you. At minimum, the principal must be repaid evenly over ten years. No interest is charged. The first repayment is due by sixty days after the year which is the fifth year following the year in which the first withdrawal is made, or earlier, if the recipient ceases to be a full time student. Earlier repayment will commence if the eligible student is not enrolled in full time education for at least three months in two consecutive years after the first withdrawal. In this case, repayment commences in the second year of not qualifying.
The repayment “system” is quite simple. You make a payment to the RRSP at your financial institution, who will give you a tax receipt, just like a normal RRSP contribution. In other words, the financial institution doesn’t need to know that you are making a Lifelong Learning repayment, not a regular earned income contribution. On your tax filing for that year, you report the amount of your payment as per the tax receipt but then designate it as a Lifelong Learning repayment; therefore, it is not tax deductible as a regular contribution.
You are not required to make the repayment back to the specific RRSP plan from which you took the funds. For instance, over the ensuing years you may have chosen to transfer your RRSP investments from one financial institution to another, so that the original RRSP doesn’t even exist any more. However, you must make the repayments to a plan of which you are the annuitant, so repayments to a spousal plan would not qualify.
If you withdraw funds under this Plan and your educational intent is not pursued, you may return the funds by the end of the calendar year following the year in which the withdrawal was made.
If you do not make the required payment by the required deadline in any year, that shortfall is added to your income for that year. Such shortfalls cannot be caught up later.
On the other hand, you are allowed to make greater payments than are required. In this case, your future payments will be reduced accordingly.
If you become a non-resident of Canada, you must either repay the outstanding balance in your final year of residency or else include that balance in income on your final Canadian return.
If you die with an outstanding balance, you must include that balance in income on your date-of-death return, less any payments designated in your final year. If you have a surviving spouse, the outstanding balance may be transferred to your survivor, who will assume the normal repayment obligation terms.