Accumulated Income Payments (Canada) – Definition

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Accumulated Income Payments Definition

Accumulated Income Payments (AIPs) refers to the Canadian Registered Education Savings Plan (RESP), a valuable saving plan which allows parents, grandparents or guardians to save for their child’s college fees. This RESP plan is also implemented in the United States as the 529 plan.

A Little More on What is an Accumulated Income Payments

The AIP’s plan can start as early as the parent or guardian wants. However, if the beneficiary decides not to attend college when RESP had already been started, all the accumulated money in RESP can be withdrawn. This withdrawn fund is what is referred to as accumulated income payments.

However, it is important to note that this AIPs cannot be withdrawn whenever the beneficiary wants. There are certain rules which apply to the withdrawal procedure as set by the RESP.

Conditions under which AIPs can be Withdrawn

The following conditions apply when a beneficiary wants to withdraw the RESP plan funds:

  • The RESP account must be more than 10 years old. Meaning, it must have existed for a period of not less than 10 years.
  • The beneficiary of the savings should be at least 21 years old and has completed school.
  • The receiver must be a Canadian resident at the time of withdrawal.
  • If the payment applies to one person who is the original subscriber or the named spouse.
  • The AIPs withdrawals are also allowed in cases where the beneficiary is dead. In this case, the subscriber who may be a parent, grandparent or guardian can make withdrawals. Note that this is only applicable if there is no other beneficiary listed in the RESP.
  • Lastly, the withdrawal can be done when the listed beneficiaries of the funds are all dead.

Note that in cases where your child has completed high school and is now enrolled in post-high school studies, the parent is allowed to withdraw some funds. These funds from RESP is to help pay for the post-high school studies. These funds are known as Education Assistance Payments.

However, Education Assistance Payments are not part of the AIPs. Therefore, they are not included in the RESP later on.

An Accumulated Income Payment does not apply to the following:

  • Payments made to an educational institution in Canada.
  • Transfers to any other RESP.
  • Refunds of contributions made to the subscriber.
  • Payments based on educational assistance.

Tax on Accumulated Income Payments

The RESP college savings are allowed to grow tax-free until the beneficiary decides to withdraw the funds. By this time, the withdraw tax is really low because most students do not have a source of income. If the accumulated taxable income is taken as cash, it is subjected to two different taxes as mentioned below:

  • The regular income tax deduction rate.
  • The 20% additional federal tax penalty.

Note that the 20% does not apply in cases of rollovers. The subscriber will require to fill a T1171 form and submit the same for consideration. Rollovers are cases where the accumulated income payment is transferred to the subscriber’s retirement benefits plan. The amount that was initially contributed to RESP will not be taxed. The interests and investments gained on the savings are the ones that are subject to taxation.

Reduction of Tax Penalty

The tax penalty can be reduced through a number of ways to ensure that you get all the full benefits. This can be done by keeping RESP open for up to 36 years by listing another beneficiary who might decide to go to college, or in case the first beneficiary decides to attend college.

If the RESP has stayed open for 36 years and has accumulated to a maximum of $50,000, the funds can be transferred to your registered retirement savings plan (RRSP), pooled registered pension plan (PRPP), or specified pension plan (SPP). This is only possible if you were the original subscriber of the RESP or you are the spouse of the original subscriber if he/she is deceased.

When to Complete the RESP

After the completion of an AIP, the RESP account cannot remain open or be transferred to another subscriber. The account has to be closed and collapsed the following year by the last day of February.


It is important to note that before subscribing to any Registered Education Savings Plan, you should be aware of what they offer. You should also be aware of the terms and conditions that apply to the savings plan.

Some RESPs may not have the option of rolling over the accumulated income payments to your registered retirement savings plan. Some RESPs also do not allow accumulated income payments.

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Academics research “Accumulated Income Payments – AIP”

Tax preferences for education saving: are RESPs effective?, Milligan, K. (2002). Tax preferences for education saving: are RESPs effective?. Commentary-CD Howe Institute, (174).

The European Union’s Foreign Direct Investment into Indonesia: Determinants and Threats, Ramasamy, B., & Yeung, M. (2004). The European Union’s Foreign Direct Investment into Indonesia: Determinants and Threats. In Foreign investment in developing countries (pp. 134-153). Palgrave Macmillan, London. For many developing economies, foreign direct investment (FDI) has been the oil that fired the engine of economic development. Typical examples include Malaysia, Singapore, Taiwan and South Korea. For countries that entered the FDI arena in the 1970s, the early-mover advantage provided them with the necessary flow of investment. Having access to cheap labour and natural resources made these economies a haven for MNCs from developed economies. Over time, however, a greater number of players have entered this FDI tournament. The late-comers, such as Vietnam, China, the Central and East European (CEE) countries as well as several Latin American nations, are now able to compete with the early-movers and in some cases are winning the tournament. At the same time, the proportion of FDI flowing to developing countries has decreased markedly in recent years (UNCTAD, 2002). South-East Asia has been particularly hit as FDI declined from USD 27.7 billion in 1997 to USD 10.7 billion in 2001. This dramatic decline has made the tournament among these countries more intense.

Analysis of Tax‐deductible Interest Payments for Re‐advanceable Canadian Mortgages, Naseem, A., & Reesor, M. (2011, November). Analysis of Tax‐deductible Interest Payments for Re‐advanceable Canadian Mortgages. In AIP Conference Proceedings (Vol. 1368, No. 1, pp. 221-224). AIP. According to Canadian tax law the interest on loans used for investment purposes is tax deductible while interest on personal mortgage loans is not. One way of transforming from non‐tax deductible to tax deductible interest expenses is to borrow against home equity to make investments. A re‐advanceable mortgage is a product specifically designed to take advantage of this tax discrepancy. Using simulation we study the risk associated with the re‐advanceable mortgage strategy to provide a better description of the mortgagor’s position. We assume that the mortgagor invests the borrowings secured by home equity into a single risky asset (e.g., stock or mutual fund) whose evolution is described by geometric Brownian motion (GBM). With a re‐advanceable mortgage we find that the average mortgage payoff time is less than the original mortgage term. However, there is considerable variation in the payoff times with a significant probability of a payoff time exceeding the original mortgage term. Higher income homeowners enjoy a payoff time distribution with both a lower average and a lower standard deviation than low‐income homeowners. Thus this strategy is most beneficial to those with the highest income. We also find this strategy protects the homeowner in the event of job loss. This work is important to lenders, financial planners and homeowners to more fully understand the benefits and risk associated with this strategy.

RESPs and Estate Planning, Carey, F. (2007). RESPs and Estate Planning. Est. Tr. & Pensions J., 27, 124.

Assessing the adequacy of contribution rates towards employees’ provident fund in Malaysia, Saidi, N. A. N., Yusuf, M. M., & Basah, M. Y. A. (2017, April). Assessing the adequacy of contribution rates towards employees’ provident fund in Malaysia. In AIP Conference Proceedings (Vol. 1830, No. 1, p. 040006). AIP Publishing. The vital role of Malaysian Employees’ Provident Fund (EPF) is to provide financial support for its participants during retirement years. However, the issues of inadequacy have risen and EPF has been through various improvements in order to cope with current living situations, including making adjustment in the contribution rates. This study intends to provide the projection of EPF accumulations for three different types of contribution rates namely contribution rates at current fixed rate, increasing and decreasing proportion. Then, the replacement ratio is calculated and is used as an indicator to determine the adequacy of retirement income delivered by EPF. The ideal replacement ratio recommended by financial advisors is at 70%. Based on the findings in this study, contribution rates following a decreasing proportion gives replacement ratio that exceeds or nearest to the ideal replacement ratio, while contribution rates at current fixed rate gives replacement rates that fall far from 70%. Therefore, this study shows that the accumulated amount in the fund with contribution rates following a decreasing proportion gives higher replacement ratio and is recommended to be applied by the Malaysian EPF.

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