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.
Principal Issues:
1. Can a grandparent make a contribution to his grandchild's RESP?
2. Do the "attribution rules" in subsection 74.1(2) of the Act apply in the situation described in 1?
Position:
1. Yes, if made on behalf of the subscriber.
2. No.
Reasons:
1. A contribution may be made to an RESP by a subscriber or on behalf of a subscriber. However, it is our understanding that, in accordance with the legislation administered by HRDC, payments on behalf of a subscriber are not eligible for the Canada Education Savings Grant.
2. Wording of 74.3(1) of the Act.
XXXXXXXXXX 2004-006455
A. St-Amour, CA
May 20, 2004
Dear XXXXXXXXXX:
Re: Registered Education Savings Plan ("RESP") - Attribution Rules
This is in response to your letter of February 27, 2004, asking us whether or not the income attribution rules apply to certain contributions made to an RESP.
In your letter, you described two hypothetical situations involving a grandparent who intends to contribute money to a minor grandchild's RESP under which his/her child is the subscriber. In situation 1, the grandparent will contribute directly to the RESP while, in situation 2, the grandparent will give money to the parent who in turn will contribute to the RESP, as the subscriber.
The subject matter of your letter appears to pertain to particular situations. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, any inquiries should be addressed to the relevant tax service office. However, we are prepared to provide the following comments that may be of assistance to you. Please note that these comments are general in nature and may not apply in a particular situation.
Paragraph 146(2)(g.2) of the Income Tax Act (the "Act") requires that each contribution in respect of a beneficiary under an RESP that does not occur by way of transfer from another RESP is made either by or on behalf of a subscriber. We are of the view that the expression "on behalf of a subscriber" is not limited to contributions made as the subscriber's agent. This paragraph is worded broadly so that all contributions are considered for a particular subscriber for purposes of the Part X.4 of the Act overpayment tax and the related revocation power under paragraph 146.1(12.1)(c) of the Act in order that these provisions cannot be circumvented by having someone else making payments into the RESP. However, it is our understanding that, in accordance with the legislation administered by Human Resources Development Canada, payments on behalf of a subscriber will not qualify for the Canada Education Savings Grant. This can be confirmed with them by phone at 1-888-276-3624.
Subsection 74.1(2) of the Act provides, in particular, that where an individual has transferred property (including money) to a trust for the benefit of a related minor, any income of the minor from the property is deemed to be income of the individual for a taxation year throughout which the individual is resident in Canada, unless the minor has attained the age of 18 years before the end of the year.
Pursuant to paragraph 74.3(1)(a) of the Act, the income of the minor described in subsection 74.1(2) of the Act cannot exceed the amount included in its income under subsection 12(1)(m) of the Act from the trust. When the trust is governed by an RESP, the minor's income that is an educational assistance payment is taxed under subsection 146.1(7) of the Act, and that payment is not included under paragraph 12(1)(m) of the Act. Accordingly, the educational assistance payments will not be subject to subsection 74.1(2) of the Act.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Revenue Agency.
Yours truly,
For the Director,
Financial Industries Division,
Income Tax Rulings Directorate
Policy and Planning Branch
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