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Registered Education Savings Plans (RESPs)Frequently asked questionsFor obsolete questions, visit the Archived FAQs.
General Information1. What is a Registered Education Savings Plan (RESP)? 1) an individual An RESP is an ESP that has been registered with Canada Revenue Agency (CRA). Types of plans: Non-family plans: These plans can only have one beneficiary. There are no restrictions on who can be a beneficiary under these plans. This means that anyone can be the beneficiary of a non-family plan. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time. Family plans: These plans can have one or more beneficiaries. However, each beneficiary must be connected by blood or adoption to each living subscriber under the plan or have been connected to a deceased original subscriber. The subscriber is free to decide when and how much he wants to contribute. The subscriber can also decide to take a break in contributions at any time. Group plans: These plans are usually offered by non-taxable entities like foundations. These plans are administered on an age group concept i.e. all contracts for beneficiaries who are 9 years old are administered together. Contributions to a Group plan are calculated by the Foundation's actuary. The amount and frequency of these contributions stay the same as long as the beneficiary has not attained 18 years old. For more information about RESPs, see the publication RC4092 Registered Education Savings Plan or call any of the following numbers: English: French: You can also consult the Social Development Canada site. http://www.sdc.gc.ca The following sections contain questions and answers arranged by topic heading. They will be updated and expanded on a regular basis. Promoter2(a) How does a promoter set up an ESP? The specimen plan must include the following documents:
2(b) Is it possible to have a three-party contract when the ESP is established? 2(c) A promoter has sent to the Canada Revenue Agency all the required documents for a proposed specimen ESP. The documents have been reviewed, the proposed specimen ESP has been approved and the promoter has received an approval number. What is the next step? The promoter must wait until he has collected all the information necessary to register at least 150 contracts (under one or more specimens) before presenting a request for registration. Listing of contracts sold in 2001 or after must be submitted electronically to the Canada Education Savings Program (CESP). An electronic submission will be considered a request for registration. The CESP system will verify that the information is complete, validate the information and, if so, will acknowledge receipt of the information for registration purposes. We will send a letter one month later registering the contracts. For further information on electronic submission of listings for contracts sold in 2001 and later, please consult the Interface Transaction Standards for CESG System Release 4.2 published by the CESP at HRSDC. You can contact them at 1-888-276-3624 or write to them at CESP.PCEE@hrsdc-rhdcc.gc.ca 2(d) How and when does the promoter submit the list? The CESP accepts monthly submissions of information for grant purposes. The electronic submission of information for registration of the first 150 contracts listings or of any following listings can be done at the same time. There will be no need for form T550 Application for Registration anymore. However, if the promoter wants the effective date of registration to be the date of the contract he will have to submit electronically all required contract information to the CESP system no later than 60 days after the end of the calendar year the contract was entered into. 2(e) What will happen if the promoter cannot submit complete and valid information within 60 days after the end of the calendar year the contract was entered into? 2(f) What information should the promoter include on the list? 2(g) What is the process for amending a specimen plan? 2(h) (archived) 2(i) Can a minor be a subscriber? 2(j) Does the Canada Revenue Agency have a written policy on how a promoter should maintain accounts for the funds held under a RESP? 2(k) Can a promoter offer subscribers an advantage when contracting for an ESP? 2(l) Does the promoter have to keep track of the beneficiary's age for all the age-related rules? 2(m) Are there any restrictions on the type of investments an RESP trust can hold? Some of the common types of qualified investments for an RESP are:
2(n) Are there any restrictions on foreign content? 2(o) Can an estate establish an RESP? SubscriberA subscriber is the individual who enters into an ESP contract with a promoter, and names one or more beneficiaries for whom he or she will make contributions.
3(a) Can a spouse and former spouse be a joint subscriber under an RESP? In the case of separation or divorce, the Act does not require the assets held in an RESP to be divided between the parties. Consequently, a spouse and a former spouse can continue to be joint subscribers under an RESP. It is good to remember that it is the spousal status of the joint subscribers at the time they enter into a contract that is important. Individuals who are already divorced would not be permitted to enter into a contract. 3(b) You just mentioned that only spouses can be joint subscribers in an RESP. In 1995, my daughter and I entered into a contract for my grandson. Do I have to change my contract to become the sole subscriber? 3(c) Can the subscriber be changed under an RESP? It is also possible to change the subscriber after the death of the original subscriber for contracts that permit it and were entered into after 1997. In this situation, any person (including the estate of the deceased subscriber) who acquires the person's rights as a subscriber under the plan or who makes contributions to the plan for the beneficiary can become a subscriber. In both situations, the new subscriber is considered to have made all the contributions to the plan. As a result, he or she may be responsible for any excess contributions tax payable after 1997 on excess RESP contributions in the months following the change. 3(d) Does a subscriber need to be a resident of Canada? 3(e) Can a minor child be a subscriber in a plan for his/her parents? 3(f) Can godparents or family friends contribute to an RESP for a child? However, anyone wishing to establish an RESP for a beneficiary should contact the beneficiary's custodial parents, as the beneficiary's SIN is required. 3(g) Can an employer sponsor an RESP for its employees? All information and all documents related to such plan would have to be presented to the Registered Plans Directorate for approval. BeneficiaryA beneficiary of an RESP is a person to whom, or on whose behalf, a promoter agrees to make educational assistance payments. The beneficiary has to qualify for the payments at the time they are made. Generally, a subscriber is not restricted in choosing a beneficiary for an RESP. However, effective January 1, 2004 an individual cannot be designated as a beneficiary unless the individual's SIN has been provided to the promoter of the plan and the beneficiary is resident in Canada. In a family plan, each beneficiary must meet both of the following conditions:
4(a) How many plans can be established for one beneficiary? 4(b) In March 1989, I entered into an RESP family contract. There was no mention in my contract that each beneficiary had to be related to the subscriber by blood or adoption. Consequently, one of the beneficiaries in my plan is not directly related to me. Do I have to remove this beneficiary from the plan? 4(c) Can a subscriber also be a beneficiary under a particular plan? 4(d) Who can be a beneficiary in a non-family plan? 4(e) Can a person with a mental or physical disability become a beneficiary under an RESP? 4(f) What does blood relationship mean? 4(g) Is an adopted child related to his grandparents? Under the Act, there is a blood relationship connection between a parent and a child (or other descendant, such as a grandchild or a great grandchild) or between a brother and a sister. An individual's niece, nephew, aunt, uncle or cousins are not connected by blood to that individual. According to the Act, individuals connected by blood relationship, marriage or adoption are related persons. Consequently, an adopted child is related to his grandparents since the child is connected by adoption to his parents who are connected by blood relationship to their parents. Similarly, the child of a spouse living in a long-term common-law relationship is the adopted child in fact of the other spouse if that spouse exercises effective parental care and guidance on a continuing basis. The child will also be related to both sets of grandparents. 4(h) Can the beneficiary be changed or replaced? For the purposes of the penalty tax on overcontributions to an RESP, all contributions made to the plan for the previous beneficiary are considered to have been made to the plan at the earlier date for the new beneficiaries. However, the penalty tax will not apply if the new beneficiary is less than 21 years old before being named, and one of his or her parents is the parent of the previous beneficiary. The tax also does not apply if both the previous and new beneficiaries were less than 21 years old at the time, and were connected by blood relationship or adoption to an original subscriber of the plan. 4(i) What happens if the beneficiary does not go to post-secondary school? For example, the investment earnings could be paid, under specified conditions, in the form of accumulated income payments to the subscriber(s) or to a designated educational institution. ContributionsContributions to RESPs are not deductible from the subscriber's income. Plans may not allow a contribution for a beneficiary under the plan, unless the individual's SIN has been provided to the promoter of the plan and the individual is resident in Canada. Annual contribution limits and lifetime limits depend on the calendar year. The annual limit for 1997 and future years is $4,000. The lifetime limit for 1996 and future years is $42,000. These limits apply to each beneficiary, regardless of the number of plans for that particular beneficiary. 5(a) Do contributions to an RESP include insurance premiums, or administration or trustee fees? If administration or trustee fees are charged outside the plan, they are not part of the contributions. If they are charged within the plan, they can be considered part of the contributions. However, keep in mind that only actual contributions are subject to the annual and lifetime limits, and qualify for the CESP. 5(b) Is it possible to assign RESP contributions or to use them as collateral for a loan?
Use of RESP funds as collateral for a loan would not qualify for any of these purposes. A refund of contributions could result in an obligation to repay the CESG. For more information, contact HRSDC at: http://www.hrsdc.gc.ca/en/gateways/nav/top. 5(c) Can the $4,000 annual contribution limit for an RESP be carried forward? 5(d) What are the consequences of overcontributing to an RESP? Subscribers have to report overcontributions based on contributions to all plans for a beneficiary. Also, a plan's registration can be revoked because of an excess contribution made for a beneficiary. 5(e) Do the contributions belong to the subscriber or to the beneficiary? 5(f) Must contributions made to a family plan be allocated to specific beneficiaries? 5(g) How long can contributions be made to an RESP? For information on eligibility for disability tax credit, see the current version of IT519, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction. Educational Assistance PaymentsAn educational assistance payment (EAP) is a distribution to a beneficiary, under certain conditions, of amounts in an RESP. These amounts include accumulated income on contributions, the Canada Education Savings Grant (CESG), enhanced CESG , Canada Learning Bond (CLB) and the Alberta Centennial Educations Savings grant (ACES) as well as income accumulated on these incentives. The EAP is to assist the individual to further his or her post-secondary education. For a payment to qualify as an EAP at the time it is made, the individual has to be enrolled full-time or part-time in a qualifying educational program at a post-secondary educational institution (either in attendance at the institution or enrolled in distance education courses). Also, for plans entered into after 1998, the amount payable to an individual before the individual has completed 13 consecutive weeks in a qualifying educational program is limited to $5 000. 6(a) (archived) 6(b) The expenses related to my child's post-secondary education for the first 13 weeks amounted to $3,800. Can we ask for the $5,000 permitted for the first EAP? 6(c) What documentation should a promoter get from a beneficiary before making an EAP? The purpose of an EAP is to assist the beneficiary to further their education at a post-secondary school level. If an EAP does not satisfy this requirement, the payment will not be considered an EAP but rather an accumulated income payment (AIP) and would be taxed accordingly. This means that the payment would be subject to the beneficiary's basic tax rate plus the additional 20% AIP tax. Promoters may wish to remind subscribers and/or beneficiaries of the consequences of an EAP being paid that is not to assist the beneficiary to further their post-secondary education. 6(d) Who determines the "reasonableness" of an expense? What if the subscriber and the promoter disagree on a specific expense? Any expense paid in accordance with the Act and the terms of the plan would be a reasonable expense. An important factor to consider is whether the expense actually helps the beneficiary to further his or her studies. 6(e) Can a summer job or part-time job disqualify a student from receiving EAPs? A qualifying educational program excludes any program taken by a student during a period for which the student receives income from an office or employment, and that is taken in connection with or as part of duties of that office or employment. This exclusion does not apply when a student accepts part-time or temporary employment to finance his or her education or when a graduate student is employed by the university to assist in teaching or marking examination papers. 6(f) A promoter makes a partial EAP to a beneficiary who dies before receiving the second part of the EAP. Can this payment be made to the beneficiary's estate? 6(g) Can an EAP be paid to a beneficiary for fees from a previous semester if he/she is no longer enrolled in school? Accumulated Income Payments (AIP)An AIP is any distribution from an RESP, excluding a refund of payments, repayment of a Canada Education Savings Grant (CESG), enhanced CESG, Canada Learning Bond (CLB) or Alberta Centennial Education Savings grant (ACES), an EAP, a payment to an educational institution, or a transfer to another RESP. AIPs usually include earnings on contributions made to the plan, and may include earnings on the CESG and (CLB). AIPs may be allowed, if all the following conditions are met:
AND
When AIPs are made from an RESP, the plan must be terminated by the end of February of the year after the year in which the first payment is made. These payments are also subject to two different taxes: the regular income tax and an additional 20% tax (12% for residents of Quebec). It is possible for some subscribers to reduce the payable tax by transferring their AIPs to their registered retirement savings plan (RRSP) or a spousal RRSP if they have accumulated enough contributions room. This transfer is limited to $50,000. 7(a) A subscriber set up an individual non-family plan for his niece a little more than 7 years ago. His niece recently died. Is the subscriber entitled to AIPs or does he have to wait until the plan has existed for 10 years? 7(b) Subscribers set up an Individual non-family plan for their only child. The plan has also existed for a little more than 7 years. The child was recently diagnosed with a severe and prolonged impairment that will prevent him from pursuing post-secondary education. Are the subscribers entitled to AIPs? Registered Plans Directorate 7(c) Is it possible to transfer assets from an RESP to an RRSP? 7(d) A subscriber is entitled to an AIP and wants to contribute that amount to his RRSP. However, the subscriber does not have enough accumulated RRSP room. Could he add his spouse to his RESP before termination? TransfersTransfers of property between RESPs are generally not restricted. The effective date of the plan where funds have been transferred, whether it is a partial or total transfer, will be the earlier of:
The effective date is relevant in determining when contributions and transfers to an RESP must end, when accumulated income payments can start and when the plan must be terminated. Transfers after 1996 can be made without resulting in any penalty tax in two cases:
8(a) I want to transfer to a new plan. Can I transfer the RESP money to the new plan before it is registered? 8(b) My contract has a grandfathered clause. I'd like to take advantage of all the new benefits permitted by the legislation and receive the CESG. Could I transfer the assets of my plan to a new contract? 8(c) Can we transfer an Individual non-family plan to any other Individual non-family plan? Is the relationship between the different subscribers and/or beneficiaries important in such transfer? What would be the possible consequences of such transfer? As mentioned above and for the application of certain rules, the effective date of the receiving plan could be deemed to be different. It is also to be remembered that even if the amounts transferred were well under the applicable limits, it could be possible to have excess contributions where the contributions are transferred to a much younger beneficiary who might not have been alive at the time the original contributions were made. 8(d) Can an RESP be transferred to a plan with a different subscriber but the same beneficiary? For example, can a grandmother who has an RESP for her granddaughter transfer this plan to her daughter's plan for the same child? It should be noted that a subscriber cannot be changed within a contract except as stipulated under the answer to 3 (c) above. 8(e) Is there a Canada Revenue Agency "transfer form" to use when initiating transfers? In addition, the promoter of the RESP transferring the property has to give the promoter of the RESP receiving the property enough information to continue to administer the transferred property. For more information refer to paragraphs 54 and 55 of IC93-3R. The promoter might want to check for HRSDC requirements on their transfer form (SDE 0050). 8(f) Can a family plan be split into non-family plans or non-family plans combined into a family plan? In both cases, the promoter of the receiving plan would have to apply the rules concerning the effective date of the new plan. In each situation, rules concerning the beneficiaries of a family plan could apply. If the beneficiary is the same individual under both plans, or the beneficiary under the originating plan is a sibling of a beneficiary under the receiving plan, no excess contributions tax would apply after the transfer. 8(g) A subscriber is entitled to an accumulated income payment (AIP) under the plan set up for his/her son. Can the subscriber receive part of the AIP and transfer the balance in the plan to a plan set up for his/her daughter? Plan Termination9(a) When does an RESP have to terminate? However, if the beneficiary may claim disability tax credit for the 21st year following the year in which the plan was opened and he or she is in a non-family plan, the maximum period during which the RESP may be in existence can be extended to 30 years, if your existing plan provides for it. For information on eligibility for disability tax credit, see the current version of IT519, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction. 9(b) What happens to the assets following termination of a plan?
The Enhanced CESG, Canada Learning Bond and Alberta Centennial Education Savings grant10. If I want to market the enhanced CESG, the Canada Learning Bond and/or the Alberta Centennial Education Savings grant, do I need to amend my specimen plan?
There is a regulation under the new Canada Education Savings Act that does not permit plans to receive the higher CESG rates or the CLB unless the plan is an individual plan or a family plan with siblings only. Promoters may wish to amend their specimen plans to restrict beneficiaries of a family plan to siblings only, although HRSDC advises that promoters may also choose to administer this rule on a contract-by-contract basis. The Canada Education Savings Regulations were published in the Canada Gazette on June 1, 2005. No amount of the CLB, the enhanced CESG or the Alberta Centennial Educations Savings Grant may be paid until the specimen plan is amended and the Registered Plans Directorate approves the amendments. In order to expedite the approval process, please submit your amendments by mail to the Registered Plans Directorate, Ottawa, Ontario, K1A 0L5, or by fax to 613-941-1701, attention: Lorraine Veilleux. If the proposed amendments are acceptable, we will advise you in writing. |
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