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.
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.
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limit for the Lifelong Learning Plan is $20,000 per use and the funds must be repaid within 10 years of being withdrawn.
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.
To qualify for the Lifelong Learning Plan (LLP), you must meet these 4 requirements:
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:
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.
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).
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.
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:
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.
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:
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.
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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Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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