31 January 2000 External T.I. 1999-0007265 - RESP EDUCATIONAL ASSISTANCE 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: Educational assistance payments- Are their any restrictions on 1) what type of expense may be covered by EAPs, or

2) the amount that can be paid?

Position: 1) Since the RESP was entered into in 1988, with no contributions made after February 1990 and the plan has not been modified since that date, the only restriction is that the amount be an "EAP" as previously defined in Act and subject to the condition in paragraph 146.1(2)(g).

2) No limit on dollar amount in Act.

Reasons: 1) The circumstances under which EAPs can be paid are governed by 146.1(2)(g) and the plan terms which must comply with the definition of EAP in the Act. New conditions in 146.1(2)(g.1) are not applicable. CCRA has not developed any guidelines concerning the expenses that may be covered by EAPs.

2) Amount restricted under subsection 146.1(2)(g.1) but, again, only for plans entered into after 1998.

XXXXXXXXXX 								1999-000726
M. P. Baldwin
January 31, 2000

Dear XXXXXXXXXX

Re: Registered Educational Savings Plan - Educational Assistance Payments

This is in reply to your letter of October 16, 1999, to the Client Services Directorate which was forwarded to our directorate for reply concerning the treatment of educational assistance payments ("EAP") out of a registered education savings plan ("RESP").

As noted in your letter you have an RESP which was started in 1988 and full contributions were made into the plan prior to 1990. No government grants were made to this plan at any time and to your knowledge no modifications have been made to the plan. The relevant provisions of the Income Tax Act (the "Act") which were in effect at the time your plan was registered have changed and as noted in paragraph 20 of Information Circular IC 93-3, individual contracts between a subscriber and a promoter under an approved specimen plan that were entered into before February 21, 1990 can continue to be administered according to the plan that was approved provided no amendments have been made to the plan.

Pursuant to subsection 146.1(7) of the Act, all EAPs paid in a year to or for the benefit of an individual are included in computing the individual's income for the year. EAPs are payments out of an RESP to or for an individual to assist the individual to further the individual's education at a post secondary level, other than refunds of payments. Refunds of payments are not included in income.

An EAP at the time your plan was entered into was defined as any amount other than a refund of payments, paid or payable under an education savings plan to or for a beneficiary to assist the beneficiary to further the beneficiary's education at the post-secondary school level.

The Canada Customs and Revenue Agency (the "CCRA")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 RESP rules limit the amount that can be contributed in respect of a beneficiary to ensure that the amount of tax-assisted savings available to one beneficiary bears a reasonable relationship to the costs of post-secondary education.

With respect to post-1990 plans and the payment of EAPs, changes have been made in the Act on the amount that can be paid. Pursuant to subparagraph 146.1(2)(g.1)(ii) of the Act, for plans entered into after 1998, a $5,000 limit was introduced on the amount of EAPs that can be paid after 1996 to an individual who is enrolled as a full-time student in a qualifying educational program before the individual has completed 13 consecutive weeks in the program. This $5,000 limit applies only until the individual has completed 13 consecutive weeks in the program. Thereafter, the individual is permitted to receive any amount of educational assistance payments from the plan provided the individual continues to be enrolled in the program.

The above comments are an expression of opinion only and therefore are not binding on the CCRA. We trust, however, that they will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate

c.c.: Rick Owen, Client Services Directorate