1 March 1999 Income Tax Severed Letter e9833045.txt - RESP, CSB'S IN NAME OF SUBSCRIBER

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 an RESP hold Canada Savings Bonds that are issued in the name of the subscriber?

Position: No.

Reasons: Investments held by an RESP must be in the name of the RESP.

XXXXXXXXXX 983304
M. P. Sarazin
Attention: XXXXXXXXXX

March 1, 1999

Dear Sirs:

Re: Qualified Investments for a Registered Education Savings Plan (“RESP”)

This is in reply to your facsimile dated December 16, 1998, wherein you requested confirmation that an RESP may hold Canada Savings Bonds that are issued in the name of the RESP subscriber.

Written confirmation of the tax consequences inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Although we cannot provide specific answers to your query, we can provide the following general comments which may be of assistance to you.

Based on the “Legislative Proposals and Explanatory Notes Relating to Income Tax” published by The Honourable Paul Martin, P.C., M.P. Minister of Finance dated October 1998, the definition “qualified investment” will be added to subsection 146.1(1) of the Income Tax Act (the “Act”). The definition sets out the types of property that a trust governed by an RESP is permitted to hold. Under the proposed legislation, bonds and other debt obligations of the Government of Canada will qualify as a qualified investment.

If the terms of a particular RESP allow for it, a contribution “in kind” may be made to the trust governed by the RESP by the subscriber.

You have described a situation where a minor owns a security such as a Canada Savings Bond. The provisions of 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).

We would also like to point out that, with respect to amounts held “in-trust” for a child, we are of the view that 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 particular trust documents. The consequences to a trust and a child entering into such a transaction would best be considered after the ability to undertake 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.

We trust that our comments will be of assistance.

Yours truly,

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