In Canada, we’re fortunate to have several options for financing someone’s education, many of which are registered through the federal or provincial/territorial government. For instance, the Registered Education Savings Plan (RESP) is a federal program that allows parents to fund their child’s schooling with tax-sheltered contributions.
Then again, what if it’s you, your spouse or your common-law partner who’s looking to study? Then you may want to consider the Lifelong Learning Plan (LLP), which is funded via your Registered Retirement Savings Plan (RRSP). Read this for more information about the Lifelong Learning Plan and how it can benefit your education.
What Is The Lifelong Learning Plan (LLP)?
The Lifelong Learning Plan (LLP) is a federally administered program that allows you to temporarily withdraw tax-free money from your Registered Retirement Savings Plan (RRSP) to finance a full-time education or training.
Unlike the RESP, the funds from the Lifelong Learning Plan can’t be used to fund a child’s studies (whether they’re your child or your spouse/partner’s). Instead, they’re meant to cover educational costs for you, your spouse or your common-law partner.
How Does The Lifelong Learning Plan Work?
The LLP allows someone to borrow up to $10,000 annually from their RRSP account. A borrower can be the account holder or their spouse/common-law partner. While it’s used primarily to fund someone’s full-time education, Canadians with disabilities can qualify for the LLP to cover part-time studies.
Currently, the maximum withdrawal limit for the Lifelong Learning Plan is $20,000 per use and the funds must be repaid within 10 years of being withdrawn.
Lifelong Learning Plan vs. RRSP Home Buyer’s Plan
The LLP borrowing process is similar to the RRSP Home Buyer’s Plan, which is another government program that allows you to borrow from your RRSP, only this time it’s for the purposes of buying or constructing a home. Typically, you must be a first-time homebuyer to qualify and the funds will go toward your down payment.
You don’t have to pay income taxes on your Home Buyer’s Plan withdrawals because the money in your RRSP is already yours and therefore doesn’t technically qualify as income. Although you can’t claim any tax deductions when you repay the funds, this means you won’t have to pay interest on withdrawals either.
The same tax and interest rules apply to the Lifelong Learning Plan, which essentially lets you finance someone’s education with tax-free funding from your RRSP.
What Are The Requirements For The Lifelong Learning Plan?
To qualify for the Lifelong Learning Plan (LLP), you must meet these 4 requirements:
- Be enrolled in or have received an offer to enroll as a full time student in a qualifying program at an approved institution
- Have a Registered Retirement Savings Plan (RRSP) account
- Be a Canadian resident
- If you’ve already made a withdrawal from the LLP this year, the next repayment period must not be active yet
Additionally, your educational program must last a minimum of 3 consecutive months and provide you with at least 10 hours of course work per week in order to qualify.
If you (or the LLP student) aren’t currently enrolled in a qualifying educational program, you need an enrollment offer from an approved educational facility prior to March of the RRSP/LLP withdrawal year.
It’s also important to understand that your RRSP money won’t be considered eligible if you don’t meet ALL of the conditions above during your LLP withdrawal period. You must also declare your withdrawal amount as income on your Income Tax and Benefit Return for the year that you borrowed the money.
However, if you meet all the requirements, you’ll be allowed to participate in the LLP:
- As many times as you want during your lifetime
- Multiple times, starting each year after you’ve reached a zero balance
- During the same withdrawal period as your spouse/partner
- Even if you have unpaid funds withdrawn through the Home Buyer’s Plan
How To Apply
If you’ve just opened your RRSP account, it may take time to build up enough funds for the LLP to be worthwhile. Plus, you’ll have to wait 90 days from the day your account was activated before you can start applying for the LLP.
To apply for the LLP, you’ll have to complete Form RC96, Lifelong Learning Plan (LLP) – Request to Withdraw for every withdrawal you make. You only need to fill in Part 1 and the financial institution that holds your RRSP should take care of the rest.
Keep in mind that if you already have an outstanding balance through the LLP, it has to be repaid in-full before you can qualify for the program again. Also, if your withdrawal is over the yearly $10,000 limit, any money beyond that amount gets treated as income.
Repaying The Lifelong Learning Plan
When you contribute to your RRSP, you get a tax deduction. To keep that deduction going, you’ll have to repay any funds you’ve withdrawn for the LLP on time and in full, otherwise you’ll be subject to income tax (although most money that you don’t deposit into your RRSP qualifies as income, so you would get taxed on it anyway).
When you withdraw money from your RRSP on behalf of the Lifelong Learning Plan, you’ll have a maximum period of 10 years to repay those funds back into RRSP and PRPP (Pooled Registered Pension Plan) and/or SPP (Specified Pension Plan).
LLP Repayment Schedule
Every year that you participate in the program, the Canada Revenue Agency will send you a Statement of Account for your Lifelong Learning Plan funds. On it, you’ll find details like your withdrawals, amount left to repay and what you have to pay next year. You can also see your LLP statement by logging into your CRA account.
While some flexibility may be possible under certain circumstances, it’s better to stick to your LLP repayment schedule to avoid any tax penalties. Most borrowers repay one tenth of their borrowed amount each year.
When Do LLP Students Need To Start Making Repayments?
Your LLP repayments generally have to start by the fifth year following the date of your first withdrawal but your repayment schedule may also vary according to your student status. For example, if you’re enrolled in full-time studies for at least 3 consecutive months of the current year or the last, you won’t have to make any repayments yet.
However, if you’re no longer enrolled in an educational program because you’ve graduated or dropped out, the CRA will start requesting payments after 2 years. Once again, if you aren’t able to afford your payments, the amount you still owe will be labeled as income. You still have to repay your RRSP borrowings, even if you go bankrupt.
Staying on as a student won’t save you from having to repay your Lifelong Learning Plan funds either. No matter what or where you’re studying, the furthest date that you can begin your repayment schedule is the fifth year following your first withdrawal. Most borrowers prefer to repay their funds ahead of time, if only to avoid potential penalties.
Actually, repaying your RRSP funds early might be mandatory if you:
- Surpass 71 years of age
- Are no longer a Canadian resident
- Drop out of school or don’t enroll in a suitable amount of courses
Repaying your LLP balance is even obligatory if you pass away. In this case, the executor of your estate will have to declare your withdrawals as yearly income.
How To Make LLP Repayments
Since the money for the Lifelong Learning Plan comes out of your RRSP account, that’s where your repayments must go. All you have to do is contribute to your RRSP during the designated repayment year or within the first 60 days of the following year. This can be done through any RRSP or provider, as well as a brand new RRSP account.
Other things you need to do when you start making repayments through the LLP:
- Declare the Repayments on Your Taxes – During your repayment year, use Schedule 7, RRSP and PRPP Unused Contributions, Transfers, and LLP or LLP Activities to declare the payments on your income taxes. Your annual Income Tax Package or online tax filing software should feature this form.
- File Your Income Taxes – If you’ve been withdrawing your from RRSP, your provider will send you a T4RSP, Statement of RRSP Income shortly before tax season. This form indicates how much you’ve withdrawn from your RRSP via the LLP, as well as the amount of tax being withheld. It must be filed with your taxes.
It’s also important to know that your LLP repayments won’t count toward your yearly RRSP contribution limit. They must be made on time, even if you’ve already contributed the maximum that year. On top of that, your LLP repayments aren’t tax deductible because you already get a deduction for contributing to your RRSP in the first place.
How many times can I use the LLP?
Can I use the LLP to fund my child’s education?
Can I qualify for the LLP if I’m studying part-time?
- You’re entitled to the disability benefit amount on line 31600 of your Income Tax and Benefit Return for the LLP withdrawal year.
- You have a mental or physical impairment stopping you from taking full-time courses and a signed explanation from a licensed medical professional, like a physician, occupational therapist, psychologist, or speech language pathologist.
What happens if I don’t repay my LLP on time?
Can you use the Lifelong Learning Plan withdrawal with the Home Buyer’s Plan?
Considering The Lifelong Learning Plan (LLP)?
Before you apply for the Lifelong Learning Plan, don’t forget to prepare your finances, pick an acceptable school program and be certain you can repay what you withdraw from your RRSP on time. If you can handle the repayments and meet the requirements, then you could be on your way to a more affordable education sooner than you think.
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