18 February 1999 External T.I. 9829815 - INCOME INCLUSION FROM RESP RECEIPTS

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: What portion of a payment out of an RESP will be taxable where it also includes a refund of contributed capital.

Position: A reasonable allocation by the plan promoter is accepted

Reasons: IC 93-3-paragraph 61

XXXXXXXXXX 			982981
W. C. Harding
February 18, 1999

Dear Sir:

Re: Educational Assistance Payments from Registered Educational Savings Plans (“RESPs”)

This is in reply to your facsimile of November 16, 1998, in which you asked us to clarify how much of the amount received out of an RESP by a beneficiary should be included in income.

Under subsection 146.1(7) of the Income Tax Act (the “Act”) all educational assistance payments (“EAPs”) paid in a year to or for the benefit of an individual are included in computing the individuals income for the year. EAPs are payments out of an RESP to or for an individual to assist the individual to further the individual’s education at a post secondary level, other than refunds of payments. Refunds of payments are not included in income.

Where a beneficiary of an RESP who is entitled to receive both a refund of payments and an EAP receives a payment out of the RESP and the value of the RESP assets exceeds the amount of contributions made to the RESP, the payment will generally include an amount that represents a refund of payments while the excess of the payment over the refund represents a taxable EAP.

No rules are provided in the Act for making a determination of the amount of the refund of payments in this situation. However, the Department’s position is stated in paragraph 61 of the enclosed Information Circular 93-3 Registered Education Savings Plans. Basically this paragraph provides that when a payment is made to a beneficiary that includes both a refund of payments made into the plan and taxable EAPs we will accept that a portion of each payment is a refund of the payments if the plan promoter has identified a reasonable portion of the amount as such.

It is a question of fact what might be a reasonable amount in any particular situation and the Department does not have any predetermined basis for establishing the breakdown. However, the policy of the promoter in this respect may be set out in the terms of the particular plan.

We trust this information will be satisfactory to you.

Yours truly,

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

Enclosure