MODULE 12: UNIT 4 Lifelong Learning Plan

Question 1

Nature

Answer 1

which utilizes funds from within the RRSP as a loan to finance the annuitant’s or the annuitant’s spouse’s education

Established to effectively allow an individual to lend herself funds from her RRSP, free of tax, for the purpose of financing either hers or her spouse’s training or education

Withdrawals from a locked-in plan are not permitted and, therefore, a locked-in RRSP is not an eligible source of funds for an LLP

-Up to $10,000 yearly or $20,000 in total

Question 2

Eligibility: Roles and condition

Answer 2

Under the LLP program there are two important roles:

• LLP Participant -> the individual who withdraws funds from her RRSP under the LLP;
• LLP Student -> the individual whose education is being financed using the LLP
• An LLP student can be either the LLP participant herself or her spouse, but not the LLP participant’s child
• Must not be from a Locked-in RRSP
• Must be resident of canada when RRSP & LLP funds are received

Question 3

Eligibility: Qualifying Educational Program

Answer 3

A qualifying “educational program” is an educational program that:

• Lasts three consecutive months or more
• Requires the student to spend at least 10 hours per week on courses or work in the program. Courses or work includes lectures, practical training or laboratory work as well as research time spent on a post-graduate thesis. It does not include study time

Question 4

Withdrawals: Use of the Funds

Answer 4

All qualifying conditions met -> there are no restrictions as to how the funds withdrawn under the LLP can be used

Question 5

Withdrawal: Amounts

Answer 5

• “Annual LLP Limit” -> the LLP participant may withdraw up to $10,000 in a single year from her RRSP
• Any withdrawal in a single year that exceeds the annual LLP limit will create an excess (amount withdrawn less annual LLP limit), which is treated as income to the LLP participant in the year the funds are withdrawn
• $20,000 limit.
• $20,000 limit renews each time a LLP participant uses the LLP (for each successive student)
• The balance must result to zero

Question 6

Restrictions on RRSP Deductions

Answer 6

A taxpayer’s contributions to her RRSP are not affected after making an LLP withdrawal

However, deductions for contributions made to an RRSP during the 90-day period prior to a withdrawal could be limited

Question 7

Restrictions on RRSP Deductions: Existing RRSP

Answer 7

Where contributions are made into an existing RRSP within the 90 days prior to an LLP withdrawn:

• if FMV of RRSP right after LLP withdrawal is the same or more than RRSP contribution, the entire contribution can be deducted from income for that year
• If FMV of the RRSP right after LLP withdrawal is less than the RRSP contribuiton, LLP participant may deduct from income portion of the contribution equal to FMV of RRSP right after the LLP withdrawal

Question 8

Restrictions on RRSP Deductions: Newly established RRSP

Answer 8

Cannot set-up new RRSP, make contribution and then immediately make an LLP withdrawal.

• Contributions must be in for 90 days before deductible for income

Question 9

Repayment of Withdrawals: Repayment Period

Answer 9

Maximum repayment period of 10 years
-LLP participant must be eligible for the 10-year repayment period

• LLP student must complete the program or continue to be enrolled at the end of march of the year after LLP withdrawal

Question 10

Repayment of Withdrawals: LLP Student Leaves Educational Program

Answer 10

• If student leaves program before April of the year after the withdrawal
• if less than 75% of the tuition is refundable, LLP participant can make repayments over a 10-year period.
• if more than 75% of the tuition is refunable, the LLP participant must cancel the LLP withdrawal

Question 11

Repayment of Withdrawals: Repayment Schedule

Answer 11

The fifth year after the first LLP withdrawal; or
The first year after the last year in which the LLP student met the LLP qualifying conditions

-Repayments must be made as an RRSP contribution in the year within the payment is due or 60 days of the following year

Question 12

Repayment of withdrawals: Repayment Calculations

Answer 12

Minimum payment is total LLP balance divided evenly over a maximum of 10 years.

• tax consequences for not meeting minimum payment is treated as a taxable income to the LLP in the year the payment was due

Question 13

Lip Balance

Answer 13

When an LLP withdrawal is made from an RRSP, it creates an LLP balance. The balance at any time is:

The total of all eligible LLP withdrawals made by the taxpayer

minus

The total of all amounts designated as an LLP repayment

minus

The total of all amounts included in the taxpayers’ income because the required repayment was not made

Question 14

Shortened Repayment Period

Answer 14

In the following situations, the repayment period may be shorter than 10 years:
LLP participant dies;
LLP participant becomes a non-resident; or
LLP participant is 70 years of age or over

LLP Participant Dies
Election
LLP Participant Becomes a Non-Resident
LLP Participant is 70 Years of Age or Over

Question 15

Cancelling Participation

Answer 15

An LLP participant can cancel her participation in the LLP if:

The LLP student was not enrolled in the program when the withdrawal was made and does not subsequently enrol;

The LLP student leaves the program before April of the year after the withdrawal and 75 per cent or more of the student’s tuition is refundable; or

The LLP participant becomes non-resident after the year in which an LLP withdrawal was made