15 December 1998 External T.I. 9824495 - RESP, CESG, NON-RESIDENTS

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:

1. Can a non-resident be a subscriber under an RESP?

2. Will contributions to an RESP in respect of non-resident beneficiaries qualify for the new Canada Education Savings Grant?

Position:

1. Yes.

2. No.

Reasons:

1. Subscriber only has to be an individual (no residency requirement).

2. Even though Human Resources Development Canada is responsible for the CESG, it is clear that grant not available in respect of non-resident beneficiaries.

XXXXXXXXXX 982449
M. P. Sarazin
December 15, 1998

Dear Sir:

Re: RESP Contributions by Canadians Living Abroad

This is in reply to your letter dated September 8, 1998, which was forwarded to us by the Calgary Tax Services Office, wherein you requested confirmation that non-resident Canadian citizens are entitled to establish and contribute to registered education savings plans (“RESP”) and whether such contributions would qualify for the proposed Canada Education Savings Grant (“CESG”).

Comments

It appears that the opinion you seek relates to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. However, we can provide you with the following general comments.

An “education savings plan” is defined in subsection 146.1(1) of Income Tax Act (the Act) to mean a contract made at any time between either an individual (other than a trust) or an individual (other than a trust) and the spouse of the individual, and a person or organization (the “promoter”) under which the promoter agrees to pay or to cause to be paid educational assistance payments to or for one or more beneficiaries. Subsection 146.1(1) also defines a “subscriber” under an education savings plan to mean the individual with whom the promoter of the plan entered into the plan, an individual who has acquired the subscriber’s rights or, after the death of a subscriber, any other person who makes contributions into the plan in respect of a beneficiary. Since there is no requirement that the subscriber must be a resident of Canada, a non-resident individual could establish an education savings plan and apply to have the plan registered for purposes of the Act. However, the non-resident individual would have to determine how the tax laws in the country in which he or she resides would apply in respect of the participation in an RESP.

No tax is payable in respect of a “refund of payments”, within the meaning assigned by subsection 146(1) of the Act, by an RESP to a subscriber. Where a non-resident beneficiary receives educational assistance payments from an RESP, the payment would be subjected to a 25% tax under Part XIII of the Act. The promoter would withhold the amount of the Part XIII tax from its educational assistance payments and pay only the net amount to the non-resident beneficiary. Whether an Income Tax Convention between Canada and the non-resident’s country of residence would result in a reduction of the Part XIII tax would be a question of fact that could only be determined when all of the facts are known.

The CESG program is being implemented under the Department of Human Resources Development Act. Consequently, any questions regarding the eligibility for the CESG should be directed to Human Resources Development Canada at 1-888-276-3624. It is our understanding that contributions to an RESP during a period throughout which the beneficiary was not resident in Canada will not qualify for the CESG. However, we suggest that you confirm this with Human Resources Development Canada.

We trust that our comments will be of assistance.

Yours truly,

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