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: Is interest on money contributed to an RESP deductible.
Position: Possibly in very limited cases.
Reasons: entitlement to income does not generally exist.
XXXXXXXXXX 5-963639
November 13, 1996
Dear Sir:
Re: Registered Education Savings Plan ("RESP")
This is in reply to your letter received October 30, 1996 in respect of the deductibility of interest paid on a loan used to contribute to an RESP.
The provisions of the Act generally allow the deduction of interest on money borrowed for the purpose of earning income from a business or property. When a subscriber to an RESP is not the beneficiary of the RESP, the subscriber is only entitled to a return of contributions and can not receive any income from the RESP. Accordingly it is our opinion that interest on money borrowed to contribute to the RESP would not be deductible because it is not being used to earn income.
Where the subscriber is also the beneficiary of an RESP, the subscriber must report any "educational assistance payments" received as income. However, educational assistance payments are conditional on the beneficiary qualifying to receive the payments under the terms of the plan. Furthermore, the subscriber can generally change the name of the beneficiary before such payments are payable. Accordingly, it is our opinion that a beneficiary of an RESP will not generally earn any income from an RESP until such time as the beneficiary has an unrestricted right to receive all of the educational assistance payments available to the beneficiary under the terms of the plan. Therefore, since no amount of income is being earned before that time, no interest payable on money borrowed to contribute to the RESP before that time will be deductible. Thereafter, however, when the contributor does have a right to the income, a contributor may deduct interest accrued each year provided the amount is reasonable in relation to the income expected to be earned from the RESP.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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