When you leave Canada and become a non-resident, your Registered Education Savings Plan (RESP) can be affected in several ways. Here’s an outline of the key considerations:
Contributions to RESP:
Canadian Residency Status of the Subscriber:
As a non-resident, you can continue to hold and manage your RESP account. However, you are no longer able to make new contributions to the RESP once you become a non-resident for tax purposes.
Government Grants:
Canada Education Savings Grant (CESG):
Once you become a non-resident, you will no longer be eligible to receive CESG on new contributions, as these grants are only available to Canadian residents.
Canada Learning Bond (CLB):
Similar to the CESG, you will not qualify for CLB after leaving Canada.
Taxation of RESP Withdrawals:
Educational Assistance Payments (EAPs): If your child (the beneficiary) is a Canadian resident and pursuing post-secondary education, EAPs (which include CESG and income earned in the RESP) will still be taxable in the hands of the beneficiary, even if you are a non-resident.
Subscriber’s Income: The non-taxable portion of the RESP (your original contributions) can be withdrawn tax-free at any time.
Non-resident taxation: If you withdraw funds as a non-resident and the funds are not used for educational purposes, the growth portion and the government grants will be subject to withholding tax in Canada. The tax rate will depend on your country of residence and any tax treaty between that country and Canada.
Closing the RESP:
Options for RESP Closure: If you decide to close the RESP, you’ll have to return any unused CESG and CLB to the government. The growth portion will be subject to taxation, as well as potential penalties (e.g., accumulated income payments are subject to a 20% penalty tax if not used for educational purposes).
Beneficiary’s Residency:
If your child (the beneficiary) remains a resident of Canada, they can still benefit from the RESP, even if you leave the country. However, if the child becomes a non-resident, additional tax complexities may arise, depending on the jurisdiction.