20 April 1993 External T.I. 9235805 F - Registered Education Savings Plan - Joint Subscribers

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

This is in reply to your letter of November 24, 1992 concerning registered education savings plans ("RESPs").

The following numerical sequence of our replies follows that of the enquiries set out in your letter.

1.     Yes, an RESP may have joint subscribers.

2.     There can be no change of subscriber to an RESP. A subscriber can assign the right to receive a refund of payments made into the plan; however, the plan must indicate that the person to whom the right has been transferred may not change the beneficiary. For example, on a marriage breakdown, it would be possible for the spouse/subscriber to assign to the other spouse the right to receive a refund of payments to the plan, but the assignee may not disentitle the named beneficiary to rights under the RESP.

     An RESP may provide for the subscriber's heirs, executors, administrators or other legal representatives to continue the plan on behalf of the subscriber on the subscriber's death.

3.     Qualifying educational institution

(a)     Paragraph 146.1(2)(g) of the Income Tax Act (the "Act") provides that an RESP may not allow for the payment of educational assistance payments to an individual unless the individual is, at the time the payment is made, a student in full-time attendance at a post-secondary educational institution and enrolled in a qualifying educational program at the institution.

(b)     For this purpose, a "post-secondary educational institution" is defined in paragraph 146.1(1)(c.l) of the Act. Where payments are made at a time that the beneficiary is not in attendance at a qualifying institution, paragraph 146.1(13) of the Act provides that the RESP may be revoked as of any date after that time. To prevent the RESP from becoming a revokable plan, the payer should ensure that the beneficiary is attending such an institution at the time the payments are made. If the payer is unsure that the institution qualifies, the relevant District Taxation Office may be contacted for assistance.

(c)     In a year that the registration of a plan is revoked, subsection 146.1(14) of the Act provides that the subscriber is required to include in his income, for that year, the amount by which the fair market value of the property in the plan exceeds the total of his net payments into the plan and the trust's pre-1972 income, if any. Also, the trust would no longer be exempt from tax under subsection 146.1(5) on its taxable income; i.e., the trust is deemed under subsection 146.1(11) of the Act to be an inter vivos trust subject to tax on its income under section 122 of the Act. With this in mind, it would seem prudent for the subscriber and/or beneficiary to also ensure that the relevant institution qualifies. Paragraph 81(1)(p) of the Act exempts the beneficiary from taxation on amounts paid out of a revoked RESP.

4.     Broker/Trustee's Obligations

(a)     With regard to the comments in 3(b) above, there is nothing in the Act specifying what a promoter/trustee's obligations are with respect to ensuring that a payment is made to a qualifying institution. A promoter/trustee would, however, be aware of the prohibition discussed in 3 above and we would therefore expect the promoter/trustee to take reasonable steps to ensure that the institution qualifies. Certainly, if the prohibition in 3 above has been contravened by a promoter/trustee without good reason, consideration would be given to cease registering education savings plans of the promoter. Aside from this potential registration problem and the results referred to in 3(c) above, the Act does not provide for any penalty or other tax liability should a payment be made to a non-qualifying institution.

(b)     With respect to your question concerning a promoter/trustee's obligation to ensure that a "reasonable amount" is being paid out of the trust, we presume you are referring to the comments in paragraph 10 of Interpretation Bulletin IT-308R. In this regard, it is our view that the responsibility to identify a reasonable portion of the assistance payments as being a refund of payments rests with the plan administrator. Since reasonableness is a question of fact, the Department would become involved only after the fact and only if it decided to challenge the allocation made by the plan administrator.

5.     From Revenue Canada's perspective, it is our view that the answer to your question is reflected in 4(a) above. Whether or not the promoter/trustee would incur a liability to another party (e.g., the subscriber) where it makes a payment in good faith and it is ultimately determined that the relevant educational institution is not a qualified institution, or that the beneficiary is not actually attending school, is a matter to be resolved between the promoter/trustee and the other party.

6.     We are not certain of your concern here since the contribution limits in paragraph 146.1(2)(k) and section 204.9 of the Act pertain to any payments made to an RESP. If a scholarship trust is not governed by an RESP, those contribution limits would not apply. Perhaps you are referring to the situation where an RESP governs

(a)     a trust referred to in subparagraph 146.1(1)(h)(i) of the Act; i.e., a trust that irrevocably holds property for the payment of amounts to or for a beneficiary to assist him to further his education at the post-secondary school level, and

(b)     a trust referred to in subparagraph 146.1(1)(h)(ii) of the Act; i.e., a trust that irrevocably holds property for the payment of scholarships or other amounts to persons, other than a beneficiary, to assist them to further their education at the post-secondary school level.

Where this situation exists, we see no problem in calculating the contribution limits. As indicated in the definition of an "education savings plan" in paragraph 146.1(1)(c) of the Act, such a plan consists of a contract under which the promoter agrees to pay or to cause to be paid to or for a beneficiary educational assistance payments. Consequently, such a plan would not be registered by the Department unless its purpose was to provide educational assistance for a beneficiary. For example, where a plan states that a subscriber's payments are to go directly to a scholarship trust described in (b) above, the plan would not be registered as an RESP by the Department. Accordingly, where a payment is made into an RESP it would be in respect of a beneficiary or beneficiaries regardless of the types of trusts that might be governed by the RESP.

We also point out for your information that, by reason of paragraph 146.1(2)(i) of the Act, the sheltering of income in an RESP entered into after February 20, 1990 must cease on or before the last day of the 25th year following the year in which it was entered into.

Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate