Lifelong Learning Plan (LLP): Borrow from yourself to finance your education

This program has a lot of similarities to the Home Buyer’s Plan. The Lifelong Learning Plan (LLP henceforth) is a program that allows you to make a zero-interest loan to yourself from your RRSP for the purpose of financing the education of yourself, or a spouse/common-law partner. The withdrawal of those funds will not be subject to tax so long as you abide by some rules of participation.

The Basics

LearningGraduation.jpgUnder the LLP, you are entitled to withdraw a maximum of $20,000 from your RRSP (tax-free) for the purpose of enrolling into a qualifying educational program offered by a designated educational institution. You can use the funds for yourself, or for your spouse or common-law partner – but not for your children. The maximum you can withdraw in any one year of the program is $10,000, but you can make withdrawals (subject to the annual $10,000 limit and $20,000 overall limit) during the period of the calendar year you first make a withdrawal and up to January of the 4th year after that year as long you remain a qualified participant the entire time.

Repayment is over a period of 10 years (as opposed to 15 years with the HBP) and when the repayments start is not always in the 2nd year after the first year of withdrawal (like with the HBP) – more on that below.

You can take advantage of the program as many times as you want in your lifetime so long as you reduce your LLP balance owing back to $0 before using the program again, and of course, you need to have funds available in a valid RRSP (i.e. you cannot use this program against a RRIF account or Locked-In RRSP).

Conditions of Participation

In addition to having an RRSP, you must also be a Canadian Resident. Further, you must:

1. Be enrolled (or have received an offer to enrol before March of the following year)…

2. As a full time student (or as a part time student only if you are disabled)…

3. At a Designated Educational Institution…

4. Offering a Qualifying Educational Program.

You must meet these conditions EVERY YEAR you make a withdrawal from the program.

If you have only received an offer to enroll in a program, then you must actually BE enrolled before March of the following year. You must either finish the course or still be enrolled in April of the following year to remain eligible for withdrawals in those years for continuing with your studies.

FULL TIME versus PART TIME: the determination of whether you are enrolled as a full time student rests solely at the discretion of the educational institute. Remember you will need to be classified as a full time student to be eligible (unless you are disabled).

DESIGNATED EDUCATIONAL INSTITUTION: A university or college or "other educational institution that qualifies for the education amount on line 323 of your tax return". If you need clarification on whether your course provider is eligible, you can call the CRA (Canada Revenue Agency) directly at 1-800-959-2221. I have spoken with the CRA often and you should know that most of their call in lines can be busy. Once you do get a ring tone and access an automated menu, it normally takes no more than 5 minutes to speak to a tax officer – and they are VERY helpful and friendly, so don’t be shy to call them and ask for clarification on any tax problems you may have.

QUALIFYING EDUCATIONAL PROGRAM: A program that requires 10 or more hours of work per week (not including study time) AND lasts 3 consecutive months or more, that is offered at a Designated Educational Institution that meets the criteria listed above.

Making the LLP Withdrawals

You need to fill out a special form, an RC96, and submit that to your RRSP issuer when you are making your RRSP withdrawal request. This will give them direction to NOT withhold taxes for the RRSP withdrawal. You will need to file a separate RC96 for each withdrawal you make under the LLP.

There are special rules around deducting the RRSP contributions you make within an 89 day period prior to making an LLP withdrawal. You will not be able to deduct the full value of those contributions from your income for that year, so when making your plans, make sure to make any contributions at least 90 days before any planned withdrawals in order to claim the maximum possible tax deductions for your RRSP contributions.

Repayments

Repayments CAN start as late as the fifth year after the year of your first withdrawal using the LLP. However, if you do not meet the conditions as listed above for eligibility every year, then your repayments will become due starting the first year AFTER the year you no longer meet the conditions. So, for example, if you are enrolling in university and take your 2nd year off, you may forfeit the ability to continue with the LLP and repayments will begin 2 years after the first withdrawal, even though you go back for another 3 years of schooling.

Your NOA (Notice of Assessment) will indicate how much you must repay for any given year. Again, similarly to the HBP, any amount not repaid when due will be included as taxable income in the year that it was due. 

Final Notes

Note that it is possible for both you and your spouse/common-law partner to participate in the program and use the proceeds for only one of you. Since the program allows you to access funds from your RRSP for use by yourself or your spouse/common-law partner, you can in effect access up to $40,000 in total for the program (with a $20,000 limit per year) for only one person’s benefit.

There are some exceptions to all the rules listed above, and it is suggested you look up the official guide located on the CRA’s website for your reference. The LLP is not used nearly as often as the HBP, and it has some more complex intricacies – as always, consult with a professional advisor when contemplating using the program to avoid any nasty tax surprises! :)

Usually, students do not have sufficient funds available in their RRSP’s to take advantage of this program so it is more appealing to mature students looking to change careers. 

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Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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  • FourPillars

    Very good post.

    I’d have to say that if I was going back to school full time (not bloody likely!) and had at least one year of low income, I would be inclined to just withdraw the money from my rrsp rather than borrow. The tax you pay on the rrsp withdrawals should be fairly low and you can "pay it back" once you are working (as contributions).

    Mike

  • Preet

    Excellent suggestion Mike! That is certainly an option for people to consider. Another option would be to not pay it back at all if you do make the withdrawal – which I will highlight in a future post as part of a strategy for certain investors (involves a small leverage and is not for everyone).

  • Stephen

    Here is my question. I want to invest in a 7K spousal RRSP before the RRSP deadline March 1st (so I can claim in on my 2009 return). Next, since I am a full time student, I will get my wife to withdraw the full amount under the LLP towards my education, 90 days later. My question is whether or not the 3 year spousal rule kicks in (i.e., the government will count the withdrawl under my income).
    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/wthdrwls/spsl-eng.html
    They never mention LLP in this document.

    I am trying to maximize my 2009 return while taking advantage of the fact that my wife is a lower income earner and can use her RRSPs to fund MY education.

    Thoughts?

    • Preet

      @Stephen, it’s true there are no specific wordings on CRA’s site that I can see regarding this specific example, but I’m inclined to believe you can’t do this. I suggest calling CRA on Monday morning to find out definitively. The other thing you could consider is just contributing to your own RRSP and making the withdrawal after 90 days.

      The reason I think you can’t do what you suggest is after looking at the form: http://www.cra-arc.gc.ca/E/pbg/tf/t2205/t2205-08e.pdf it seems to suggest that you still need to fill out this form regardless of whether the withdrawal is for HBP, LLP or any other reason. Read the notes on page 2.

      Please let me know if you find any other information (or get an answer from CRA).

      Good luck!