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: Whether the six-month extension for making EAPs provided under subsections 146.1(2.21) and (2.22) applies once the beneficiary is deceased.
Position: No.
Reasons: Scheme and purpose of section 146.1
August 10, 2015
Registered Plans Directorate HEADQUARTERS
Mark Legault Faye Kravetz, JD, MBA
Manager, Special Products Policy Section 416-973-3049
Actuarial and Policy Division
18th Floor, Tower B, Place de Ville
2014-052798
RE: Whether the extension for making educational assistance payments from a registered education savings plan applies if the beneficiary is deceased
This letter is in response to your memorandum sent on April 8, 2014, wherein you requested our opinion as to whether the extension for making educational assistance payments (“EAPs”) out of a registered education savings plan (“RESP”) under subsection 146.1(2.21) of the Income Tax Act (the “Act”) can apply when the beneficiary under the plan is deceased. All statutory references in this letter are references to the provisions of the Act.
Background - The Law
Paragraph 146.1(2)(g.1) stipulates that one of the conditions for registration of an RESP is that EAPs can only be paid to or for an individual who is at the time of payment enrolled in either a qualifying educational program or a specified educational program. Subsection 146.1(2.21) relaxes this requirement to allow for the payment of an EAP to or for an individual within six months of the individual ceasing to be enrolled in such a program so long as the conditions of paragraph 146.1(2)(g.1) were otherwise met immediately before such cessation. Subsection 146.1(2.22) deems the timing of a payment made in accordance with subsection 146.1(2.21) to be made immediately before the cessation of enrolment for the purpose of applying paragraph 146.1(2)(g.1).
Issue
The question arises as to whether the six-month extension for making EAPs provided under subsection 146.1(2.21) allows for the payment of an EAP “to or for an individual” once the individual in question is deceased. In the specific scenario provided we understand that the beneficiary met the requirements of paragraph 146.1(2)(g.1) immediately before enrolment in the qualified program ceased.
The general purpose and scheme of section 146.1 is to encourage long-term savings for the future post-secondary education of children and youth and for the payment of those savings to be linked to furthering the education of a beneficiary by way of current enrolment in a qualifying post-secondary program. EAPs directly further this purpose as amounts paid to or for a beneficiary from an RESP to help finance the costs of qualifying post-secondary education. EAPs can consist of government grants and bonds and the earnings on the money contributed to the RESP.
Where a payment made out of an RESP is not an EAP and also not one of the payments described in paragraphs (c) through (e) in the definition of “trust” in subsection 146.1(1), the payment by definition will be an accumulated income payment (“AIP”). In general AIPs are included in the recipient’s income in the year of receipt and are subject to an additional 20% tax (subject to certain available rollovers). AIPs were introduced as a permissive measure to allow for the withdrawal of income from an RESP when the purpose of the RESP did not come to fruition (i.e., no beneficiary pursued qualifying post-secondary education). The additional 20% tax is levied to account for the fact that the savings were permitted to accumulate tax free for the years in which the RESP was in place.
It is our position that the phrase “to or for an individual” in subsection 146.1(2.21) must apply in respect of a living individual and an EAP cannot be paid in respect of a beneficiary once the beneficiary in question is deceased.
We trust the above comments will be of assistance.
Mary Pat Baldwin, CPA, CA
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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