26 April 2001 External T.I. 2001-0066975 - EAP RESP REFUND OF PAYMENTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Can amounts that constitute subscriber contributions into an RESP be paid out as educational assistance payments to the beneficiary under the RESP?

Position: No.

Reasons: Subscriber contributions can only be paid out as a refund of payments under an RESP and a refund of payments is specifically excluded from an educational assistance payment under its definition.

XXXXXXXXXX 2001-006697
M. P. Sarazin, CA
April 26, 2001

Dear XXXXXXXXXX:

Re: Educational Assistance Payments and Losses within an RESP

This is in reply to your letter of January 22, 2001, requesting our views as to whether a registered education savings plan ("RESP") has to recognize realized losses in computing the amount that could be paid out as educational assistance payments ("EAP"), within the meaning assigned by subsection 146.1(1) of the Income Tax Act (the "Act"), to the RESP beneficiary.

Comments

An EAP is defined in subsection 146.1(1) of the Act as any payment, other than a refund of payments, made to a designated beneficiary under an education savings plan to assist the beneficiary to further his or her post-secondary education. A refund of payments is defined in subsection 146.1(1) of the Act as a return of all or part of the contributions made by or on behalf of a subscriber under an RESP. We note that the Canada Customs and Revenue Agency (the "Agency") has not developed any guidelines respecting the meaning of EAP. The term is broad in scope and it is our general position that if payments are made in accordance with the plan as registered, the RESP trustee will comply with the Act's requirements.

The EAP that may be paid out of an RESP to a beneficiary will represent the Canada education savings grant ("CESG") paid into the RESP plus any income, net of any realized losses, earned by the RESP. EAPs are included in the recipient's income under subsection 146.1(7) of the Act. Unless the realized losses exceed the CESGs paid into the RESP and the income earned by the RESP, the realized losses should not affect the amount that could be paid out as a refund of payments to the subscriber under the RESP.

As noted earlier, there are no rules in the Act for making a determination of the amount of the refund of payments. Where a beneficiary is entitled to receive the EAPs and the refund of payments under an RESP, the breakdown of payments from the RESP becomes more complicated. The Agency has stated in paragraph 61 of Information Circular 93-3 Registered Education Savings Plans (available on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html) that, when a payment is made to a beneficiary that includes both a refund of payments made into the plan and taxable EAPs, we will accept that a portion of each payment is a refund of the payments if the plan promoter has identified a reasonable portion of the amount as such. It is a question of fact what might be a reasonable amount in any particular situation and the Agency does not have any predetermined basis for establishing the breakdown. However, the policy of the promoter in this respect may be set out in the terms of the particular plan.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate