Do you or your spouse intend to study further to enhance skills and odds of landing with a better job? Are you worried about the finances? Well, if you are a contributor to Registered Retirement Savings Plan (RRSP), then you shouldn’t worry at all! You can leverage the Lifelong Learning Plan to take care of finances pertaining to yours or your spouse’s education. Let learn more about this scheme.

Lifelong Learning Plan: Eligibility, application process and repayment procedure

Lifelong Learning Plan is a special provision for Canadians who are RRSP contributors. Just like Home Buyer’s Plan of RRSPP, Lifelong Learning Plan allows Canadians to borrow loans from their retirement savings. This loan can be borrowed by the candidates to support their studies in order to enhance their earning potential.

What is Lifelong Learning Plan?

A Lifelong Learning Plan is a program that enables Canadians to withdraw money from their retirement savings (RRSP) to finance their education. The withdrawal is non-taxable and needs to be repaid in easy installments. The RRSP contributor can borrow the money for personal training and education of spouse or common-law partner (CLP). You can withdraw up to $20,000 for the education of a single person with an annual withdrawal limit of $10,000. You can claim the LLP program several times as there is no limitation on that. However, you can withdraw funds under the LLP scheme only after paying back the preceding LLP completely. This loan needs to be paid in tenure of 10 years. LLP program is only applicable to contributors and their spouses. The scheme cannot be used to support the education of their children.

What is the eligibility for the Lifelong Learning Plan?

Do you wish to apply for the Lifelong Learning Plan? If so, then you should know about the eligibility criteria before applying for it. Firstly, only residents of Canada enrolled under the Registered Retirement Savings Plan are eligible to avail this provision. You must also qualify for any educational course in a reputed institute that is eligible for LLP. Furthermore, the duration of the education program should at least be three years and the applicant must study at least 10 hours each week. 

How to apply for Lifelong Learning Plan?

In order to apply for the Lifelong Learning Plan, you need to first check your eligibility and get enrolled for an education program. Then, you need to fill Form RC96, which is a form to request the withdrawal of funds from RRSP. The form has two parts: Part 1 and Part 2. You just need to fill Part 1 of this form and Part 2 of the form will be filled by the issuer of RRSP. You won’t be liable for any taxes on the withdrawal.

If you are not an RRSP candidate, you can register for the RRSP in easy steps and then start contributing to it. After registering, you can easily withdraw LLP funds for your education. However, you should know that the Lifelong Learning Plan can’t be used for the first 90 days after RRSP registration. Hence, you can withdraw LLP funds only after completing 90 days with RRSP. 

What is the withdrawal limit for Lifelong Learning Program?

The LLP funds are not limited to the tuition fees and other expenses of education. Rather, every candidate can withdraw $20,000 for education. However, there is an annual limit of $10,000 on withdrawal. The LLP funds can be used for education and even for other purposes, but candidates must be eligible for the withdrawal. You can use LLP infinite times, but you cannot apply for LLP without repaying the previous one.

Let take an example: Tom enrolls for a 3-year course and borrows $20,000 as LLP in 2005 and repays it by 2017. In 2018, Tom’s wife wants to receive training to enhance her earning potential. She can also borrow $20,000 for her education as earlier dues were paid by 2017. Tom, his wife and his common-law partner can avail LLP as many times as they want but 2 LLPs cannot be sanctioned at a time.  

Repayment of the Lifelong Learning Plan

As you know, there are no tax deductions on RRSP and even on LLP. However, you need to deposit the LLP funds back in RRSP if you want to continue enjoying tax-exemption. In case of failure of any repayment, you will be liable to pay taxes on all LLP withdrawals. That’s why you should always strive to deposit LLP repayments on time.

Ideally, the duration of depositing withdrew LLP funds is 10 years after you start the first repayment. The borrower needs to pay one-tenth of the amount annually until the tenth year when you’ll be able to repay the whole amount. The biggest perk of the Lifelong Learning Plan is that you just have to pay the same amount back as much you withdrew. The LLP funds are exempted from tax deductions. 

Every year, you’ll receive an LLP Statement of Account prepared by the Canada Revenue Agency. This statement will supply details related to your withdrawals, the amount re-paid to date, and the amount that needs to be paid in the following year.  You can also access the website of the Canada Revenue Agency to view your detailed LLP statement.

LLP borrower are required to follow the repayment schedule strictly. If you miss any payment, you’ll surely have to pay taxes on it. For example, if you had to pay $2000 yearly and you just paid $1700, then the government will treat $300 as your income and levy tax on it.

What is the process of making LLP repayments?

The process of making LLP repayment is similar to making any usual contribution to RRSP. You can repay the LLP funds either during the year of repayment or within 60 days of the following year. It can be repaid to any RRSP issuer.

Repayments are non-taxable. Hence, you can designate repayments on your tax report. You need to select Schedule 7 to designate your deposits as LLP repayments. The RRSP issuer will also send a T4S statement showing the amount withdrawn from RRSP and tax withheld. This form will allow you to claim tax deductions.  

When should LLP borrowers start making repayments?

Basically, it’s your choice as a borrower as to when you’d like to stat with repayment. You can start repaying from the second year after using LLP or even from the same year. According to the guidelines of the Canada Revenue Agency, the latest an LLP borrower is permitted to start making repayment is from the fifth year onwards. Furthermore, if you are no longer claiming the tax credit on education for three months in a row, then you’ll have to start paying by the second year after this.

Though students can avoid repayment for some years, it is better to make the repayments as early as possible. There are serious repercussions of avoiding repayment and not even bankruptcy can protect you. In addition to that, your repayment may be subject to taxes in many cases including (i) if the LLP withdrawal turns 71 (ii) The borrowers dies (iii) The LLP borrower is no longer a Canadian citizen (iv) LLP borrower is no longer a student or was unable to enroll on time.

Closing note

Clearly, the Lifelong Learning Plan is great to finance your studies or your spouse’s education. It is a provision under the Registered Retirement Savings Plan whereby contributors can withdraw a sum of $20,000 to support the education of an individual. LLP can be used many times by the contributors and their spouses, provided that there are no backlogs. The LLP funds are not subject to any taxes if repayment is done according to the schedule. Once started, the repayment has to be made within 10 years. Hence, you can enhance your earning capacity by receiving higher education supported financially by the Lifelong Learning Plan.