Under what circumstances would an individual generally be subject to tax on RESP withdrawals?

Question: Under what circumstances would an individual generally be subject to tax on RESP withdrawals?

Answer options:

• When the beneficiary uses the funds for post-secondary education.
• When the contributor makes contributions to the RESP. ✅ When the plan is terminated, and accumulated income payments (AIPs) are made to the subscriber.
• When government grants are received by the RESP.

Correct answer: When the plan is terminated, and accumulated income payments (AIPs) are made to the subscriber.

Explanation: Accumulated income payments (AIPs) made to the subscriber upon termination of an RESP, if the beneficiary does not pursue post-secondary education, are subject to tax at the subscriber's marginal rate plus an additional 20% penalty tax (12% in Quebec).