Reducing the amount of AIPs subject to tax
You can reduce the amount of AIPs subject to tax if you are the original subscriber, you acquired the former subscribers’ rights as a consequence of marriage breakdown or, where there is no subscriber of the plan, you are or were the spouse or common-law partner of a deceased 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), pooled registered pension plan (PRPP), or specified pension
plan (SPP), or your spouse’s or common-law partner’s RRSP or SPP, in the year the AIPs are received or in the first 60 days of the following year; and
- your RRSP/PRPP deduction limit allows you to deduct the amount contributed to your RRSP, PRPP, or SPP or your
spouse’s or common-law partner’s RRSP or SPP on line 208 of your income tax and benefit 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 under the plan after the death of the original subscriber.
By claiming a deduction for a contribution to your RRSP, PRPP, or SPP, you reduce your taxable income, which reduces your regular tax. The deduction for the contribution 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 RRSP, PRPP, or SPP or your spouse’s or common-law partner’s RRSP or SPP; and
- your RRSP/PRPP 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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