10 January 1996 External T.I. 9525765 - MAXIMUM CONTRIBUTIONS TO RESP

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:

Discussion of maximum annual and lifetime payments to RESP both before and after February 20, 1990.

Position:

Discussed administrative (pre-budget) and Act's (post-budget) provisions respecting monetary limits.

Reasons:

Routine

XXXXXXXXXX 952576

Attention: XXXXXXXXXX

January 10, 1996

Dear Sirs:

Re: Registered Education Savings Plan (RESP)
Maximum Contribution Limits

This is in reply to your letter of September 27, 1995, in which you ask us to confirm the maximum contribution permitted in respect of a single beneficiary of an RESP. You also ask whether the maximum amount is determined solely by beneficiary, or by reference to the number of plans or subscribers.

Although you asked us to provide a ruling we are unable to do so because your request did not comply with the requirements of Information Circular 70-6R2, a copy of which is enclosed for your information. Your deposit will be returned under separate cover. We can, however, provide the following general comments which are not binding on the Department. The following discusses the Income Tax Act (the "Act") provisions and administrative rules respecting limits on contributions to RESPs both before and after the amendments to the Act introduced by the February 1990 Budget Speech.

Pre-Budget Law and Administrative Positions

There were no provisions in the Act with respect to annual maximum amounts contributed to an RESP nor any penalty tax with respect to excess lifetime contributions in respect of a beneficiary. The only limits were those imposed through the registration process which required that plans registered between 1982 and February 20, 1990, had to limit the amount paid into the RESP by, or on behalf of, the subscriber for any one beneficiary to $25,000 indexed by the Consumer Price Index each year after 1982. See paragraph 19(a) of Information Circular 93-3 (enclosed) concerning this requirement.

In addition, a subscriber could open only one individual plan for each beneficiary although if the subscriber had opened a group plan prior to 1983 for a beneficiary, the subscriber could also enter into an individual plan for that beneficiary (paragraph 19(b) of the aforementioned Information Circular).

To summarize, generally a subscriber could open only one plan for any one beneficiary and was restricted to a total lifetime contribution of $25,000 (indexed by the Consumer Price Index each year after 1982) for that beneficiary. However, a beneficiary could be named under more than one RESP provided each such RESP had a different subscriber.

Post-Budget Law

The Budget amendments introduced two monetary limits for RESP's. For plans entered into after February 20, 1990, the plan is required to specify that the total of all payments in a year in respect of a beneficiary cannot exceed $1500 (paragraph 146.1(2)(k) of the Act).

The second limit is provided by the Part X.4 tax in respect of overpayments in respect of a beneficiary and took effect for months ending after January 1990. An overpayment or excess amount occurs when the total of payments made by one or more subscribers in respect of a particular beneficiary exceeds the lesser of $1500 per year and $31,500. The legislation provides exceptions with respect to both the annual and lifetime limits as follows.

With respect to the annual $1500 limit, payments made in 1990 before February 21, 1990, are not included.

With respect to the lifetime limit, if there is more than $31,500 in all RESP's with respect to a beneficiary on or before February 20, 1990, no tax is exigible except with respect to payments made after that date.

Lastly, and with respect to both the annual and lifetime monetary limits, all payments made after February 20, 1990, are included in the sum except if a subscriber is required to make periodic payments to an RESP and has made at least one such payment before February 21, 1990. In this case payments made by a subscriber under the agreement (including both periodic and lump sum payments to satisfy the balance of payments required) and payments made by other subscribers under similar agreements will not create an excess amount with respect to a particular beneficiary by reason of payment of the agreed amounts alone. The amount of the payment(s) in excess of either the annual or lifetime maximum for a particular beneficiary is deemed by subsection 204.9(2) of the Act to be equal to the annual limit or the available room for the lifetime limit.

To summarize the post-budget law, an individual can be a beneficiary of more than one RESP and a subscriber can open more than one RESP with the same beneficiary, but the total of payments into all RESPs for a single beneficiary cannot exceed an annual amount of $1500 or a lifetime maximum of $31,500 without either attracting penalty tax or, in the case of excess annual payments to a post-February 20, 1990 RESP, causing the RESP to be revocable. A subscriber, however, will not be subject to tax where RESPs in respect of a single beneficiary hold property in excess of $31,500 on or before February 20, 1990; and no tax is exigible for payments made after the budget date if periodic payments are required by an agreement entered into before that date and at least one such payment was made before that date.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch