Are you familiar with the term Accumulated Income Payments (AIP)? If not, you’ve come to the right place. In this article, we will discuss everything you need to know about AIPs and how they relate to Canadian taxes. So, let’s get started.

What are Accumulated Income Payments (AIP)?

Accumulated Income Payments (AIPs) refer to a type of payment that is made from a registered education savings plan (RESP). This payment is made to the subscriber or the beneficiary when the RESP ends, and there are still funds left in the account. An AIP is essentially a payment of the accumulated income that has not been used for educational purposes.

It’s important to note that AIPs are subject to taxation, and the tax implications can vary depending on several factors.

How are AIPs taxed?

AIPs are taxed as regular income in the year they are received. This means that the amount of the AIP is added to your total income for the year, and you will be taxed accordingly.

It’s important to note that AIPs are not eligible for the education tax credit. This is because the funds were not used for educational purposes, and therefore, they do not qualify for the credit.

Additionally, AIPs are subject to a special tax rate. The tax rate on AIPs is based on the subscriber’s or beneficiary’s income for the year. The higher the income, the higher the tax rate on the AIP.

How to avoid the AIP tax?

If you want to avoid paying tax on AIPs, you can transfer the funds to an RRSP or a Registered Retirement Income Fund (RRIF). However, it’s important to note that there are specific rules and regulations surrounding these transfers, and it’s important to consult with a tax professional before making any transfers.

It’s also important to note that there are specific rules surrounding the use of funds in an RESP. If the funds are not used for educational purposes, they may be subject to taxes and penalties.

Conclusion

In summary, Accumulated Income Payments (AIPs) are a type of payment that is made from a registered education savings plan (RESP) when the plan ends, and there are still funds left in the account. AIPs are subject to taxation and are taxed as regular income in the year they are received. AIPs are not eligible for the education tax credit and are subject to a special tax rate based on the subscriber’s or beneficiary’s income. To avoid paying tax on AIPs, you can transfer the funds to an RRSP or a Registered Retirement Income Fund (RRIF), but it’s important to consult with a tax professional before making any transfers.