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:
Whether Act permits RESP earnings to be applied to plan administration and trustee charges.
Position:
Yes.
Reasons:
Can use either capital or earnings because of registration requirement in 146.1(2)(a) and definition of "trust" in 146.1(1).
953242
XXXXXXXXXX P. Spice
March 6, 1996
Dear XXXXXXXXXX:
Re: Registered Education Savings Plan ("RESP")
This is in reply to your letter received December 12, 1995, in which you ask for an opinion concerning the proper accounting for fees in an RESP. In particular, you ask whether such fees should be charged to capital (i.e., the amounts contributed by you) or to earnings. In your letter you indicate that in your view earnings in an RESP can only be applied for three purposes, those being:
1) paid to a beneficiary,
2) paid to a university for the credit of a beneficiary, and
3) paid to a designated educational institute.
Please note that in addition to the foregoing purposes, the definition of "trust" in subsection 146.1(1) of the Income Tax Act (the "Act") also permits the RESP to apply its property for
4) the payment of scholarships or other amounts to persons other than the beneficiary to assist them to further their education at a post-secondary level, and
5) the "refund of payments" (i.e., as defined in subsection 146.1(1) of the Act, generally the amount paid or payable to the subscriber as or on account of a refund of amounts paid to the plan not in excess of the total amounts paid by or on behalf of the subscriber to the plan).
Paragraph 146.1(2)(a) of the Act requires that an RESP provides that the property (which includes capital and earnings) of the RESP trust "after the payment of trustee and administration charges" be irrevocably held for any of the purposes described in the definition of "trust" in subsection 146.1(1) of the Act. Thus, the Act does not distinguish between the use of earnings or capital for payment of trustee and administration charges.
The Department has taken the position in Information Circular IC 93-3 ("Registered Education Savings Plan") that "trustee and administration charges can be deducted from either the subscriber's capital in the RESP or from the income the RESP earns" (see paragraph 7 of the enclosed copy of the Information Circular). We believe this position is supported by the definition of "trust" in subsection 146.1(1) of the Act and by the registration requirement contained in paragraph 146.1(2)(a) of the Act. It is the contract between the subscriber and the promoter, however, which will authorize the use of either or both the capital or income of the RESP for such expenses, and interpretation of the contract is a matter to be settled between the parties to the RESP.
We are sorry we are unable to confirm your interpretation of the provisions but trust the foregoing comments satisfactorily explain our position.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
b.c.c.Mr. Jonathan Hollinger
Registered Plans Division
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1996
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1996