15 December 1999 External T.I. 9931285 - NATIVE BANDS 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: 1) Can an Indian Band qualify as a subscriber under an RESP? 2) Can an Indian Band make a contribution on behalf of a Band member who may be the subscriber under an RESP?

Position: 1) Question of Fact. 2)Yes

Reasons: 1) A subscriber has to be an individual and whether a band may qualify as an individual for purposes of the Act is a Q of F. 2) A contribution may be made to an RESP by a subscriber or on behalf of a subscriber. However, in accordance with the legislation administered by HRDC, payments on behalf of a subscriber are not eligible for the new Canada Education Savings Grant.

XXXXXXXXXX 			993128
M. P. Sarazin

Attention: XXXXXXXXXX

December 15, 1999

Dear Sirs:

Re: RESPs and First Nations Bands

This is in reply to your undated letter to the Saskatoon Tax Services Office which was faxed to us on March 29, 1999, wherein you asked several questions regarding the proposed establishment of registered education savings plans ("RESPs") by First Nations Bands (the "Bands") for the benefit of the children of its members.

On July 27, 1999, you were advised that our file was being closed because the Registered Plans Division of the Canada Customs and Revenue Agency (the "Agency") had received a copy of your letter and they were discussing the relevant issues with the Department of Finance. We were recently asked to reopen our file because some of the issues can only be resolved after a review of the facts related to each particular case.

Comments

The opinions that you seek relate to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by the Agency. 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. Furthermore, since the proposed transactions relate to initial or continued registration of a plan under the Income Tax Act (the "Act"), final resolution of any issues must be sanctioned by the Registered Plans Division.

We understand that the primary purpose of the establishment of the RESPs by a Band or by a member of a Band is to take advantage of the new Canada Education Savings Grant (the "CESG") offered by Human Resources Development Canada. It is our understanding that only contributions made by the subscriber under the RESP are eligible for the CESG and, as such, contributions made by another person on behalf of the subscriber under the RESP will not be eligible for the CESG. For information concerning the CESG, please contact Human Resources Development Canada at (888) 276-3624.

Some of the issues related to RESPs and Bands are as follows:

Band Named as Subscriber of an RESP

A subscriber is defined in subsection 146.1(1) of the Act and the portion of the definition that is relevant to this discussion defines subscriber as "an individual with whom the promoter of the plan entered into the plan". An "individual" is defined in subsection 248(1) of the Act to mean a person other than a corporation. A "person" is defined in subsection 248(1) to include any corporation and any entity exempt, because of subsection 149(1), from tax under Part I on all or part of the entity's taxable income. Note that the definition of "person" is not exhaustive.

In order to determine whether a Band may qualify as a subscriber, the facts would have to support a conclusion that the Band is an individual for that purpose of the Act. The Agency has from time to time made findings in specific cases where the facts warrant that a particular Indian Band qualifies as an exempt entity under paragraph 149(1)(c) of the Act as either "a public body performing a function of government" or as a "Canadian municipality". The determination of whether a particular Band would constitute an individual for all purposes of the Act or, more specifically, for purposes of the definition of "subscriber" in subsection 146.1(1) of the Act is a question of fact which we will consider in the context of arguments submitted in support of an advance ruling request.

Band Members are Subscribers and Contributions are Funded by the Band

Where a Band member is the subscriber under an RESP, we would point out that a condition for registration under paragraph 146.1(2)(g.2) is that the plan only allow contributions to the RESP to be made by the plan's subscriber or on behalf of the plan's subscriber or by way of transfer from another RESP. Consequently, the RESP could accept payments from the Band member or payments made by the Band on behalf of the Band member. We also note that the payments from the Band member could be funded with Band member funds or funds borrowed by the Band member. Whether payments by the Band in these circumstances would affect contribution eligibility for the CESG is an issue which should be discussed with Human Resources Development Canada.

If you have any questions that relate to existing RESPs, they should be addressed to the Registered Plans Division of the Agency. If you have questions that relate to specific proposed transactions, including the status of a particular Band for purposes of the Act, they should be addressed to our directorate in the form of a request for an advance income tax ruling as described in IC70-6R3.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate