Going back to class as easy as LLP

National Post

2010-09-04


With the focus this time of year on back to school for the kids, have you considered returning to higher learning yourself?

If so, you're in luck as you may be able to fund that post-secondary education by withdrawing money tax-free from your RRSP under the government's Lifelong Learning Plan (LLP).

Modelled around the Home Buyer's Plan, the LLP, introduced in 1999, now has 116,851 participants with a total balance outstanding of nearly $558-million, according to Canada Revenue Agency spokesman Philippe Brideau. Last year alone, based on the 2009 tax returns, about 11,350 Canadians participated in the LLP, withdrawing a total of $68-million from their RRSPs.

The LLP allows you to withdraw amounts from your RRSP to finance not only your own training or education, but also to pay for the education of your spouse or partner.

Amounts withdrawn are not included as income and simply must be repaid to your RRSP over a maximum 10-year period. Any amounts you fail to repay when due are included in your income for the year in which they were due.

While there is a total LLP withdrawal limit of $20,000, the maximum you can take out in one calendar year is $10,000. As long as you continue to qualify, you can withdraw money from your RRSP under the LLP each year until the end of January of the fourth year.

For example, if you take out money for the first time this semester under the LLP, you must make your final withdrawal before February 2014.

To qualify, you must enroll full-time in a post-secondary program, which must last three consecutive months or more and requires you to spend 10 hours or more per week in lectures, practical training or laboratory work.

Thinking of making an RRSP contribution so you can deduct it on your 2010 return -- and then immediately withdrawing the funds under the LLP? Think again.

If you don't already have an RRSP with sufficient funds, you could be caught by the "90-day rule," which states that any RRSP contributions you make within 90 days of participating in the LLP may result in your inability to deduct them for any year.

For example, Gary has an RRSP worth $4,000. He contributes $8,000 to his RRSP on Sept. 1, 2010, and withdraws the $10,000 annual maximum permitted under the LLP on Sept. 8, 2010, leaving an RRSP balance of $2,000. The result of the 90-day rule is that Gary can't deduct $6,000 of his RRSP contribution, which is the difference between what he contributed within the previous 89 days ($8,000) and the value of his RRSP after the LLP withdrawal ($2,000).

Sound complicated? It can be tricky, there's a work chart in Appendix A of CRA's LLP Guide (RC4112) which makes the calculation a snap.