Lifelong Learning Plans
The new year can often bring about new reflections. Perhaps you’re motivated to change careers or obtain new qualifications. The pursuit of ongoing education is not just an investment in personal development but also a strategic financial endeavor. A Lifelong Learning Plan (“LLP”) can help you fund that journey.
LLPs stand as a testament to the Canadian government’s recognition of the importance of continuous learning and the need to support individuals in their educational journeys. They allow Canadians to withdraw up to $10,000 from their Registered Retirement Savings Plans (“RRSPs”) in a calendar year (up to $20,000 in total) to fund further training or education, for themselves or for their spouse or common-law partner. These amounts are not included in your income, and tax will not be withheld by the RRSP issuer.
Who is eligible for an LLP?
To be eligible for a LLP, you must meet all the following requirements:
1. Residency
You must be a resident of Canada.
2. Enrollment
The individual enrolling in further education (either yourself or you spouse or common-law partner) must be:
A) Enrolled as a full-time student
However, it should be noted that exceptions can be made. It is possible to enroll on a part-time basis if the student meets certain “disability conditions”. To meet these requirements, the student must have a mental or physical impairment that prevents them from being enrolled as a full-time student (supported by an accompanying letter from a medical professional) or they must be entitled to the disability amount on line 31600 of their income tax and benefit return for the year of the LLP withdrawal.
B) In a qualifying educational program
These are programs that are offered at designated educational institutions. To qualify, these programs must last for at least three consecutive months and require at least 10 hours of time per week to be spent on courses or work in the program (not including study time). These programs must also be “of a technical or vocational nature designed to provide a person with skills for, or improve a person’s skills in, an occupation” or, in any other case, at a post-secondary school level.
C) At a designated educational institution
This naturally includes Canadian universities, colleges, or other educational institutions. However, other eligible establishments include Canadian institutions certified by Employment and Social Development Credit Canada in courses other than those designed for university credit, universities outside Canada where the student would obtain a bachelor’s degree or higher, or American universities that a student living in Canada within proximity of a border commutes to throughout the year.
3. RRSP Withdrawal
Finally, you must have an RRSP that will allow for withdrawals.
Repayment
A ten-year repayment period is granted, with outstanding amounts becoming taxable income if not repaid within this timeframe. Conditions for the ten-year repayment period include program completion or continued enrollment as of March of the year following the withdrawal. Repayment typically commences in the fifth year after the first withdrawal or if the student ceases to be considered qualifying for at least three months in a year.
Cancellation
Cancellation of an LLP withdrawal is feasible under specific circumstances, such as failure to enroll in a timely manner, early departure from a program before April of the year after the withdrawal and 75% or more of the tuition was refundable, or if the student becomes a non-resident of Canada before the end of the year in which the withdrawal was made.
To cancel, one must repay the amount taken from the RRSP (which is not considered to be an RRSP contribution), obtain a contribution receipt from their RRSP provider, and provide the same in a letter to the CRA containing further information, such as the reason for the cancellation and information about the person who made the withdrawal.
Conclusion
As it becomes increasingly common to consider a change in career, an LLP can help to alleviate some of the financial burden associated with what is undeniably a major transition in one’s life. By enabling individuals to leverage their RRSPs for educational pursuits, LLPs not only foster lifelong learning but also offer tax advantages that support such endeavors. Understanding the eligibility criteria, repayment obligations, and cancellation provisions outlined in Canada’s tax legislation is crucial for maximizing the benefits of LLPs. As education continues to evolve, LLPs serve as a pivotal bridge between personal development and financial prudence within the framework of Canadian tax law.
**Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.