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:
Various concerns with respect to RESPs
Position:
Provided answers that explained provisions of the Act and did not reply to questions relate to tax planning.
Reasons:
It is appropriate to limit answers to explain the law and not expand into tax planning areas.
December 14, 1998
WINNIPEG TSO HEADQUARTERS
B. Cook W.C. Harding
Director (613) 957-8953
Attention: Jim Simpson
Client Services Division
982986
Registered Education Savings Plans ("RESPs")
This is in reply to your facsimile of November 17, 1998, in which you asked a number of questions concerning RESPs.
The provisions of the Income Tax Act (the "Act") do not prevent minors from being subscribers to RESPs. However, we understand that other non-tax legislation affects the ability of a minor to enter into a contract (including an RESP contract).
It is a question of fact whether an arrangement commonly referred to as an "in-trust" account is a trust for tax purposes. However, where such an arrangement is a trust, it must be administered in accordance with any legislation applicable to trusts. A trust cannot enter into an RESP contract because of definition of an "education savings plan" in subsection 146.1(1) of the Act.
Whether a minor can receive funds out of a trust or transfer funds held in a trust to the minor's parents for the purpose of contributing them to an RESP is a question not covered by the Act but one which may be addressed in other legislation and in the trust documents. The consequences to a trust and a child entering into such a transaction would best be considered after the ability to under take the transaction is determined by the trustee. However you may wish to review the Department's position on payments out of trusts for the benefit of minors published in Income Tax Technical News No 11 dated September 30, 1997.
The specific terms of an RESP will govern how funds held in the plan can be used once all educational assistance payments are withdrawn. Paragraph 146.1(2)(d.1) of the Act restricts the timing of any payments of accumulated income while paragraph 146.1(2)(f) of the Act restricts the use of the funds on termination of the plan. Paragraph 146.1(2)(i) of the Act then requires the plan to be terminated on or before the last day of the 25th year following the year in which the plan was entered into. In general, a plan could provide for the payout of any growth remaining after all educational assistance payments have been made, provided the provision satisfies the requirements of these subsections. Situations that are contrived to take advantage of the tax deferred growth in an RESP without any regard for the purpose of the RESP rules could be subject to the general anti avoidance provisions of the Act.
The Act does not specifically provide for the seizure of RESPs or RRSPs on bankruptcy.
Under Draft CES Grant Regulations, grants are paid into an RESP based on the order contributions are made into the RESP by a subscriber in respect of a particular beneficiary. Grants are paid until the grant limit applicable with respect to that beneficiary is reached. In addition, each beneficiaries' unused grant room for a year is reduced each time a grant is paid to any RESP. Therefore, if contributions are made to two or more RESPs in respect of the same beneficiary the system is designed to prevent the payment of any excess grants. In general, if there is an overpayment, an RESP trust must make any required repayments. However, where a beneficiary receives CES grants in excess of $7,200 the beneficiary may also be required to repay the excess.
CES Grants made to an RESP in respect of one beneficiary may generally be used for the education of another beneficiary provided the conditions in the draft CES Grant Regulations are met.
You should also note that the CES Grant program was introduced under Part XIII.1 of the Department of Human Resources Development Act and is being administered by Human Resources Development Canada. Inquiries with respect to the grants should be directed to Human Resources Development Canada at 1-888-276-3624.
We trust these comments are of assistance.
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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