6 November 1998 External T.I. E9819865 - RESP TRANSFERS TO RRSP RE HOME BUYER PLAN

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Principal Issues: Can amounts held in an RESP be transferred to an RRSP for the purpose of repaying amounts withdrawn under the home buyers plan?

Position: Yes, but the beneficial tax consequences of doing so are limited if the amount is an accumulated income payment as defined in the RESP provisions as Part X.5 tax will apply.

Reasons: The law was not drafted to provide this option.

XXXXXXXXXX 981986
W. C. Harding
Attention: XXXXXXXXXX

November 6, 1998

Dear Sirs:

Re: Registered Education Savings Plan (“RESP”)
Transfers to a Registered Retirement Savings Plans(“RRSP”)

This is in reply to your facsimile of July 31, 1998, in which you asked if amounts held in an RESP can be transferred to an RRSP and designated as a repayment under the home buyers plan.

The following comments relate to the provisions of the Income Tax Act (the “Act”) only. A particular RESP and/or RRSP may also have terms that are relevant to a determination of your question. You should therefore also review the terms of the plans before undertaking any particular transfers.

Under the terms of the Act, a subscriber can receive a “return of payments” and “accumulated income payments” from an RESP. These terms are defined in subsection 146.1(1).

An amount received as a return of payments is not taxable to the subscriber. The amount received can be contributed to an RRSP and designated as a repayment of an eligible amount under the home buyers plan.

Accumulated income payments are taxable to a recipient under subsection 146.1(7.1) of the Act. In addition, a 20% tax under Part X.5 of the Act will be charged on the amount of the accumulated income payment. The amount on which the 20% Part X.5 tax is applied may be reduced if, in the year of the income inclusion for the accumulated income payment, an amount is deducted under subsection 146(5) or (5.1) (i.e. the rules for RRSP deductions). A deduction under these provisions can only be made for “premiums” paid to an RRSP as defined in subsection 146(1) of the Act. “Premiums”, as defined, excludes, for this purpose, any repayment described in subparagraph (b)(ii) of the definition “excluded withdrawal” in subsection 146.01(1) of the Act or an amount designated under 146.01(3) of the Act as a repayment under the home buyers plan. Thus, an amount contributed to an RRSP can be designated as a repayment under the home buyers plan, but it would not be considered a premium that would reduce the Part X.5 tax nor would it be deductible under subsection 146(5) or (5.1) of the Act.

In summary, an accumulated income payment received from an RESP could be designated as a repayment under the home buyers program but doing so would not eliminate the taxation of the amount under either Part 1 of Part X.5 of the Act.

Yours truly,

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