Reducing the amount of AIPs subject to tax
You can reduce the amount of AIPs subject to tax if you are the original subscriber or, where there is no other subscriber, the spouse or common-law partner of a deceased original subscriber and you meet both of the following conditions:
- you contribute an amount not more than the amount of the AIPs (to a lifetime maximum of $50,000 worth of AIPs) to your registered retirement savings plan (RRSP), or your spouse's or common-law partner's RRSP, in the year the AIPs are received or in the first 60 days of the following year; and
- your RRSP deduction limit allows you to deduct the amount contributed to your or your spouse's or common-law partner's RRSP on line 208 of your tax return. Claim the deduction for the year in which any payments are made.
You cannot reduce the AIPs subject to tax if you became a subscriber because of the death of the original subscriber.
By claiming an RRSP deduction, you reduce your taxable income, which reduces your regular tax. The RRSP deduction also reduces the amount of additional tax payable by reducing the amount of AIPs subject to tax (see Form T1172 , Additional Tax on Accumulated Income Payments From RESPs). If the amount of the RRSP deduction equals the amount of the AIPs, the taxes on the AIPs are zero.
Promoters usually have to withhold regular and additional taxes on AIPs. However, they do not have to withhold tax if both of the following apply:
- the AIPs are transferred directly to your or your spouse's or common-law partner's RRSP; and
- your RRSP deduction limit allows you to deduct the contribution in the year it is made.
Complete Form T1171, Tax Withholding Waiver on Accumulated Income Payments From RESPs, to ask the promoter to transfer the payment directly to your or your spouse's or common-law partner's RRSP without withholding tax.
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