TaxMatters@EY – July 2025

Krista Fox, Toronto, and Gael Melville, Vancouver

While summer is still in full swing, for registered education savings plan (RESP) subscribers with children entering or returning to post-secondary education in the fall, now is the time to contemplate strategies to increase the money available to assist in funding these education costs and reduce the taxes that might otherwise be payable.

In this article, we discuss how funds withdrawn from an RESP are taxed and provide some tips on the most efficient ways to withdraw RESP funds.¹

Who controls the RESP when the student is attending a post-secondary institution?

For many, heading off to college or university provides the first opportunity to be responsible for making day-to-day financial decisions. Many parents, having diligently saved for their child’s education, may be concerned that their child will spend the proceeds from the RESP unwisely. Fortunately, there are numerous safeguards built into the design of the RESP program that reduce this risk.

Contributions to the RESP continue to belong to the subscriber of the plan, typically the parents, and the subscriber is the one who applies for payments to be made from the RESP. Generally, the subscriber determines how much is paid out of the plan and to whom it is paid, as well as how much comprises contributions versus other amounts as discussed below.

Additionally, the RESP provider is responsible for ensuring the RESP is administered in accordance with tax laws, which means that your RESP provider is responsible for ensuring educational assistance payments (EAPs) are used to further your child’s education at the post-secondary school level.² This requirement is vague and may lead to some question as to which types of expenses may be eligible.

Your RESP provider will ask for proof of enrolment before issuing an EAP. They may also provide you with a list of allowable expenses or ask for receipts for school purchases to prove the EAP is being spent on allowable education expenses. Administratively, the CRA does not expect providers to assess the reasonableness of each expense, provided the EAP is below a certain threshold, which is indexed annually. For 2025, this threshold is $28,881.³

The following table shows examples of expenses the CRA considers to be reasonable or unreasonable:

Therefore, the RESP remains under the control of the subscriber, with some oversight by the RESP provider.

What types of payments can be made from an RESP and how are these payments taxed?

There are two types of payments that may be made from an RESP when the beneficiary is attending a post-secondary institution. Amounts withdrawn that were funded with contributions to the RESP are referred to as a “refund of payments.” Such amounts may be withdrawn tax free.

In contrast, EAPs include government grants and income earned on contributed amounts and government grants. These amounts are taxable to the beneficiary in the year of withdrawal.

Accumulated income payments (AIPs) represent the remaining balance in the RESP once all EAPs, refunds of payments and payments to educational institutions are made. When paid out of the plan, AIPs are taxable as ordinary income to the recipient and subject to a 20% penalty tax, except in certain circumstances where the AIP is rolled over to a registered disability savings plan (RDSP) or when an eligible RRSP deduction is claimed.⁴ An RESP subscriber may claim an RRSP deduction up to a lifetime maximum of $50,000 of AIPs contributed to their RRSP, provided they have sufficient RRSP deduction limit remaining.

What are the considerations in planning a withdrawal strategy from the RESP?

There are many things to consider in planning a withdrawal strategy. While tax considerations play an important part in maximizing the benefits of the RESP in any withdrawal strategy, there are many other things to consider.

For example, the subscriber may have a need for the funds in the RESP now or in the future. Since the subscriber controls the RESP, contributions to the plan can be returned to the subscriber to meet planned or unexpected financial needs on a tax-free basis.

In addition, depending on the nature of the post-secondary program in which the student is enrolled, the proceeds from the plan may need to last several years. This could affect the investment strategy for the plan itself and the rate at which amounts are withdrawn.

If the student is considered financially responsible, the subscriber may wish to maximize the level of withdrawals each year to provide the student liquidity and allow them more autonomy over the accumulated savings within the plan. However, the comments earlier in the article regarding the reasonableness of EAPs must be borne in mind.

For family plans, the subscriber will need to consider the needs of current and future students who are to be supported by the RESP. This can affect the portion of the RESP savings you withdraw today versus the funds to be left in the plan for future beneficiaries. A family plan allows flexibility to share funds among beneficiaries, although a particular beneficiary cannot withdraw more than $7,200 in Canada Education Savings Grant money from a family plan.

You would also need to consider each of the beneficiaries’ earnings potential and the level of financial support they will need. For example, students enrolled in cooperative education programs may have unexpected relocation expenses, but this might be offset by earnings from work terms. Similarly, the due dates for tuition payments will vary by educational institution. If large tuition payments must be made within the first 13 weeks of enrolment, this will affect whether payments out of the RESP may be made by EAP or must be made by refund of contributions.

There may be some uncertainty or doubt over whether the student will remain enrolled in post-secondary studies. This may affect the choice of the mix of payments (refund of payments or EAPs) to limit the grants that would need to be returned in the event the student discontinues their studies.

Generally, where appropriate, the subscriber would want to withdraw EAPs first; there is an $8,000 limit on EAPs in the first 13 weeks of full-time studies, but no limits beyond that as long as the money is used for reasonable education expenses.⁵ There is a limit of $4,000 per 13-week period for a student enrolled in a part-time program.

In addition, the subscriber will want to consider the tax implications of withdrawals from the plan to minimize income taxes paid each year, as well as to avoid paying the 20% tax on earnings within the plan not previously withdrawn when the student has completed their post-secondary studies.

Conclusion

After taking into account other considerations, careful planning and management can help to maximize RESP withdrawals and minimize tax liability.

For more information on this and any other topics that may be of concern, please contact your EY or EY Law advisor.

Lucie Champagne, Alan Roth, Yiyun Chen and Candra Anttila, Toronto

We’ve updated our popular personal tax calculator and rate cards to reflect budget proposals and news releases up to June 1, 2025.

Frequently referred to by financial planning columnists, our mobile-friendly 2025 personal tax calculator lets you compare the combined federal and provincial 2025 personal income tax bill in each province and territory. A second calculator allows you to compare the 2024 combined federal and provincial personal income tax bill.

You’ll also find our helpful 2025 and comparative 2024 personal income tax planning tools:

• An RRSP savings calculator showing the tax saving from your contribution
• Personal tax rates and credits by province and territory for all income levels

In addition, our site offers you valuable 2025 and comparative 2024 corporate income tax planning tools:

• Combined federal-provincial corporate income tax rates for small business rate income, manufacturing and processing income, and general rate income
• Provincial corporate income tax rates for small business rate income, manufacturing and processing income, and general rate income
• Corporate income tax rates for investment income earned by Canadian-controlled private corporations and other corporations

You’ll find these useful resources at ey.com/ca/taxcalculator and several others — including our latest perspectives, thought leadership, Tax Alerts, up-to-date 2025 budget information, TaxMatters@EY and much more. 

Ayoub v The King, 2025 TCC 48
Kelsey Horning and Caitlin Morin, Toronto, and Jeanne Posey, Vancouver

In Ayoub v The King, the Tax Court of Canada addressed director’s liability for a corporation’s failure to remit GST/HST. The failure to remit was partly due to deemed sales from renting out newly constructed residential properties before they were sold.

The court dismissed the director’s arguments that the corporation had not failed to remit the tax because it never received the sale proceeds, and that the due diligence defence should apply. The court considered the steps the director took to prevent the failure insufficient to establish a due diligence defence.

Background and facts

Context

Mr. A was the sole director and shareholder of a corporation that operated as a custom home builder, having previously focused on project management for custom home projects. After the corporation started building homes for resale, it engaged in the construction of six properties in Ottawa. In 2014 and 2015, market conditions deteriorated, and the corporation had difficulty selling the properties. Mr. A reduced the prices of the properties as a result.

While three of the properties were sold in the first half of 2014, the corporation was experiencing financial difficulty. Mr. A contributed his own funds to the corporation and borrowed from friends, family and private lenders to cover closing and ongoing costs. At the same time, lenders requested payment of outstanding mortgages.

To generate cash flow, Mr. A decided to rent two of the properties after consulting with his lawyer and real estate agent. Both properties remained listed for sale during the rental periods. The first property was rented to a third party on April 10, 2015, and sold in July 2017. The second property was rented to a third party on October 28, 2015, and sold in October 2016.

In October 2015, Mr. A’s accountant informed him that renting the properties triggered an obligation to remit GST/HST; however, the corporation did not remit the applicable GST/HST. Both properties were later sold but no GST/HST was collected because they were exempt sales.

In summary, the corporation did not remit the required amount of GST/HST, as and when required, for various reporting periods in 2014, 2015 and 2016. As well, most of the corporation’s returns during the relevant periods were filed several months after the due date.

Self-supply rules and director’s liability

The corporation was assessed under the self-supply rules of the Excise Tax Act (ETA). The self-supply rules provide that, when a builder rents out a newly constructed or renovated residential property prior to its sale, there is a deemed sale of the property, and they must collect and remit GST/HST on that deemed sale.

In the absence of the self-supply rules, the Crown would have no opportunity to collect GST/HST in respect of a home rented out by a builder despite granting input tax credits during the building phase.

The CRA assessed the corporation for $332,863 in respect of net tax owing, penalties and interest. The liability related to the quarters ending December 31, 2014, March 31, 2015, June 30, 2015, and September 30, 2016.

Under the director’s liability provisions of the ETA, Mr. A was assessed as jointly and severally liable with the corporation to pay the amount owing. The director’s liability provisions provide that a director may be held liable for GST/HST owing by the corporation unless the due diligence defence — discussed further below — or another exemption, such as ceasing to be a director more than two years prior to the assessment, is applicable.

Court’s analysis

Neither Mr. A nor the corporation contested the underlying amount of GST/HST assessed. Rather, Mr. A argued that the corporation did not receive proceeds of sale from the deemed sales of the rented properties or collect GST/HST, and so it did not fail to remit. The court rejected this argument.

In the case of the rented properties, under the relevant provisions, there was a deemed sale based on the fair market value of the properties when they were rented. The ETA establishes an obligation to calculate net tax based on amounts that “became collectible and all other amounts collected.” In other words, the requirement to remit does not depend on actually collecting GST/HST.

Mr. A also argued that the due diligence defence to director’s liability applied. The court rejected this argument as well.

The due diligence defence set out in the ETA requires that the director make efforts to prevent the corporation’s failure to remit tax owing. Specifically, the director must exercise “the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances.”¹

The court emphasized that the standard of care is increased when — as in the case at hand—the corporate directors are aware that the corporation is facing financial difficulties.

Although the corporation had completed late filings and made some payments of tax owing, the court noted that actions taken to finance the corporation or correct failures after the fact are not sufficient to establish a due diligence defence. The court also noted that Mr. A had not consulted his accountant or any other tax professional prior to renting out the two properties, which would have been expected if he were concerned about GST/HST remittances.

Furthermore, the funds Mr. A and other parties put into the corporation were used for other purposes, such as to discharge the mortgages and secure sufficient funds on closing, and not to address tax obligations. The court found that Mr. A failed to prioritize the corporation’s obligation to remit the tax owing.

Lessons learned

This decision highlights the criteria for the due diligence defence for director’s liability under the ETA, particularly where directors are aware that the corporation is facing financial difficulties. Corporate directors must monitor compliance with GST/HST obligations and take steps to prevent tax remittance failures. A director may be held jointly and severally liable with the corporation to pay unremitted GST/HST and any associated interest or penalties.

Taxpayers involved in real estate development should note that the self-supply rules may apply if they rent out a newly constructed or renovated residential property instead of selling it. Taxpayers should seek professional advice to assess any tax implications and ensure compliance before renting or selling property.