28 July 2009 External T.I. 2007-0257611E5 - RESP registration and taxability

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: What are some of the tax consequences if a promoter does not satisfy paragraph 146.1(2)(b) at a particular time?

Position: General consequences described

Reasons: Basic description and clarification of the provisions governing the registration of RESPs.

			2007-025761
XXXXXXXXXX 	W. C. Harding
			613-957-8953
July 28, 2009

Dear XXXXXXXXXX :

Re: Registered Education Savings Plan (RESP)

This is in reply to your letter of October 24, 2007, in which you asked for clarification of comments made in Information Circular IC93-3R Registered Education Savings Plans (the "Circular") concerning the registration of RESPs.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate 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, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature and are not binding on the Canada Revenue Agency (CRA). All publications referred to herein can be accessed on the CRA website at the following address:

http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.

In order for an educational savings plan (an "ESP") to be registered a number of conditions set out in subsection 146.1(2) of the Income Tax Act (the "Act") must be satisfied as described in Part II of the Circular. In particular, as noted in paragraph 37 of the Circular, at the time a promoter applies for the registration of a plan, the promoter must have sold at least 150 plans under approved specimen plans.

For purposes of the Act, paragraph 146.1(12)(b) of the Act provides that if an ESP is registered after 1975 it shall be deemed to be registered on January 1 of the year in which it is registered. However, as noted in paragraph 51 of the Circular, paragraph 146.1(3) of the Act provides that if a plan cannot be registered solely because the promoter has not sold 150 plans, it may subsequently be registered when this condition is met and it will be deemed to have been registered on the first day of January of:

• the year in which all of the other conditions for registration were met; or
• the year preceding the year in which the plan is actually registered

whichever is the later.

For example, if a promoter sold a particular plan in 2007:

(a) it would deemed to be registered on January 1, 2007, if all of the conditions for registration were satisfied at the time the plan was submitted for registration in 2007;

(b) it would be deemed to have been registered on January 1, 2007 if the promoter sells at least 150 plans by the end of 2008; and

(c) it would be deemed to have been registered on January 1, 2008 if the promoter manages to sell at least 150 plans by the end of 2009.

A trust governed by an ESP is not subject to taxation under Part I of the Act if the ESP is registered or is deemed to be registered for that year. Accordingly, in scenarios (a) or (b) of the above example, a trust governed by an RESP would not be subject to tax in either 2007 or 2008 but in scenario (c) would be subject to tax in 2007 and exempt from taxation in 2008.

The trust governing the plan will be deemed to be an inter vivos trust for the period the trust was not governed by a registered plan and will be subject to taxes. Income from the trust is taxable and is deemed to be income for the subscriber.

We trust that these comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch