Minutes of the Registered Education Savings Plan (RESP) - Consultation Session
October 30, 2001

Opening Remarks

Fred O'Riordan, Director General of the Registered Plans Directorate (RPD), welcomed all the participants to the first RESP Consultation Session. He introduced the head table.

Director Reports

The Directors of each division of RPD gave an overview of their responsibilities within the Directorate, particularly with regard to registered education savings plans. The presenters included:

Patricia Spice, Director, Policy and Communications Division
Annelisa Gillespie, Director, Registration Division
Janice Laird, Director, Actuarial Division
John O'Meara, Director, Compliance Division

SIN Deadline - Impact of non-registration of 1999 and 2000 Education Savings Plans (ESPs)

Mark Legault, RPD, provided a brief overview of the problem of education savings plans opened in 1999 and 2000 not being registered because the social insurance numbers (SINs) of beneficiaries were not provided by the December 31, 2000 deadline. In a final attempt to get 1999 plans registered, RPD extended the deadline for providing the missing SINs to December 31, 2001. Promoters must apply for registration of these ESPs by March 1, 2002. These announcements were made in a letter dated April 3, 2001. This letter also included the initial T3 reporting requirements applicable to these plans. The reporting requirements were revised in a subsequent letter dated May 22, 2001. (Copies of both of these letters, and their related fact sheets, were available as handouts.)

RPD also extended the deadline for applying for registration of ESPs opened in 2000, to March 1, 2002. This announcement was made in a letter dated July 27, 2001. Mr. Legault read an information sheet prepared by Ed Williams of Assessing and Collections, which summarized the reporting requirements that will apply to 1999 and 2000 ESPs if promoters do not apply for their registration by the deadline.

If the SIN of the beneficiary has been obtained from the subscriber, and the plan will be retroactively registered, there will be no requirement to file a T3 return.

More information about the tax consequences for these plans may be found in the following links:

www.ccra-adrc.gc.ca/tax/trusts/esp-e.html
www.ccra-adrc.gc.ca/tax/registered/resp/resp_new-e.html

Gail Kuchma, Kevin Stackhouse, and Ed Williams of Assessment and Collections fielded questions from members of the audience. A participant asked why beneficiaries in pre-1999 plans need a SIN to pay out educational assistance payments (EAPs), and under what authority does the CCRA require SINs for these individuals.

Subsection 237(1.1) of the Income Tax Act requires individuals to provide their social insurance numbers to any person required to make an information return under the Act. Every person who fails to provide his or her SIN is subject to a penalty of $ 100 for each failure under subsection 162(6) of the Act. Under subsection 237(2), any person making an information return has to make a reasonable effort to obtain the SIN from the individual to whom the return relates.

Specimen Plans Process

Robin Stong reviewed the specimen plan process for RESPs.

With the advent of the new system for registering ESP contracts, we have had cause to review the specimen plan process at RPD. As stated in our letter of October 17, 2001, the Act does not address the concept of specimen plans. The Act requires that the Minister review each ESP contract sold. To relieve this administrative burden, the specimen plan process was developed to ensure that each ESP contract complies with the Act and Information Circular 93-3.

Under the specimen plan process, the contracts submitted for registration must conform to the most recently approved specimen plan on file at RPD. In order to assure the Minister that this condition is being satisfied, we have added the requirement to file the commercially printed copy of the approved specimen within 30 days of the approval of the specimen plan by the CCRA. RPD is committed to reviewing these documents on a priority basis.

RPD has requested that all promoters provide us with a commercially printed copy of the most recently approved version of the specimen plan by December 31, 2001. Promoters may submit computer-generated contracts if that is what they use.

The participants were advised that, unlike in the case of RRSPs or RRIFs, the trustee does not have ultimate responsibility for administering RESPs. That responsibility lies with the promoter. Promoters were reminded to provide RPD with authorization to deal with secondary parties submitting documents by or on behalf of a new promoter. RPD also requires the name, address, and telephone number of a contact person for the promoter and the trustee.

Participants were reminded that printing and marketing of the specimen plan cannot commence until all phases of the approval process have been completed and a letter approving the commercially printed copy of the most recently approved specimen plan has been received. Following this procedure will avoid the recall of unapproved documents.

RPD has identified two common problems in marketing these plans. The first is the use of the term "registered" when referring to the ESP. The plan only becomes registered if the subscriber requests registration and registration is approved by the Minister. The second problem is the use of commercially printed copies that combine family and non-family plan terms into one document. This practice has led to errors because the subscriber is not clear on the type of RESP being purchased. RPD will permit joint applications provided there are separate sections for beneficiary designations under a family plan and beneficiary designations under a non-family plan. The application must clearly indicate the type of plan for which application is made.

Ms. Stong advised the participants of a pilot project being initiated by the RESP group to review specimen plans electronically. Participants will be updated as progress is made.

Process of registering new ESPs

Susan McIntyre reviewed the process for registering ESPs.

Before 1999

Requests for registration of pre-1999 ESPs were made via paper listings. These paper listings included contracts entered into in the calendar year. These listings had to be submitted no later than 90 days after the end of the calendar year, and had to be accompanied by Form T550, signed by an officer of the promoter. The information that RPD required on the listings included the name, address, and SIN of the subscriber, the contract number, and the date the plan was entered into.

1999 and 2000

For plans entered into in years 1999 and 2000, RPD also required the name, address, and SIN of the beneficiary.

Due to the difficulty in obtaining beneficiary SINs, an extension to December 31, 2001, was provided for registering ESPs opened in 1999. The same extension has been granted for plans opened in 2000. A process for retroactive registration of these plans has been implemented, where SINs are provided to promoters by December 31, 2001, and listings are provided to RPD before March 1, 2002.

For registration of contracts entered into in 1999 and 2000, we require:

• Form T550 completed and signed by the promoter of the plan, and
• a listing that includes the required information for each contract.

For 1999 plans only, indicate on Form T550, the listing, or the covering letter that you are requesting a retroactive registration.

Do not include contracts that do not have all of the required information. The required information is:

• the name, address, and SIN of the subscriber;
• the name, address, and SIN of the joint subscriber;
• the name, address and SIN of each beneficiary; and
• the number of the contract and the date it was entered into.

Please do not take these requests to a tax services office. Send them to:

Registered Plans Directorate
Canada Customs and Revenue Agency
112 Kent Street, 16th floor
Place de Ville, Tower B
Ottawa ON K1K 5P2

2001 and later years

For plans opened in 2001 and later years, all information required to register contracts for ESPs should be forwarded electronically to the Canada Education Savings Grant (CESG) program.

The contract information is submitted monthly to the CESG system and processed. At the end of the month, RPD receives from CESG the validated information for these contracts. RPD ensures that the contract being registered complies with an approved specimen, and verifies that a commercially printed copy is on file. A letter referencing the month the contract was submitted will be sent to the promoter registering the plans, with the acceptable record type 200 for beneficiaries and subscribers.

Information Circular 93-3R, Registered Education Savings Plans

Mr. Legault advised that Michel Cronier of the Policy and Communications Division is drafting the RESP information circular. The participants were asked for their input in making this a better product. The circular was last updated in 1993.

Some of the new features of the revised circular are as follows:

• Paragraphs 20-21 of the revised version distinguish in more detail full-time versus part-time attendance at a designated education institution.
• The $5,000 EAP limit that applies to the first 13 weeks of enrolment in a qualifying educational program is explained in paragraph 26 of the revised circular. Related provisions, such as the waiver of the limit under certain circumstances, are explained in paragraph 27.
• Accumulated income payments (AIPs) are described in paragraphs 28-32, and the conditions for allowing AIPs are explained in paragraph 36(c).
• Paragraph 35 explains that payments to designated educational institutions are allowed if EAP and AIP conditions are not met (i.e., when there is only a small amount of money in the plan)
• The annual ($4,000) and lifetime ($42,000) contribution limits are described in paragraphs 36(k) and 40.
• Grandfathering provisions are described in paragraph 42.
• The effective date of registration (for 2001 and later years) is found in paragraph 50. The effective date of registration will be the date that the plan was entered into, provided all required plan information is electronically forwarded and acceptable before the first day of the 13th month after that date.
• A description of the CESG is provided in paragraphs 64-70.

The participants were asked to provide any comments on the circular by November 15, 2001, to Michel Cronier (Michel.Cronier@ccra-adrc.gc.ca)

A participant asked why the circular did not address individual tax implications, such as the overcontributions tax. The intent of the RESP information circular is to address the registration requirements for RESPs. The introduction section of the circular will be amended to clarify its intent.

Questions and Answers

Note: Additional CCRA questions and answers relating to RESPs may be found at our website at:

The Directorate received numerous questions from the industry. After eliminating duplicates and others that were too specific for this session, we responded to the following questions. Mark Legault read the attached questions and answers in English; Lyne Aubin-Morisset in French. Our enquiry groups will answer any questions that were submitted but not answered at today's consultation session.

All changes to ESP specimens require a review by the CCRA before they can be marketed.

This process ensures that all registered contracts, which could attract the CES grant, comply in all respects with the Act and administrative rules set out in Information Circular 93-3, Registered Education Savings Plans.

The Registered Plans Directorate does not offer administrative relief for an RESP.

A plan must comply with the conditions for registration of an RESP under subsection 146.1(2) of the Act at all times.

Overcontributions for a beneficiary are based on the total of all contributions (other than payments made to the RESP under the CESG program) made by, or for, all subscribers. The penalty tax applies at the end of a month to the total of all contributions made by all subscribers to all RESPs for a beneficiary, where the total exceeds the annual or lifetime limits for that beneficiary.

The "RESP annual limit" as defined in subsection 146.1(1) of the Act and the "RESP lifetime limit" as defined in subsection 204.9(1) of the Act are $ 4,000 and $ 42,000 respectively, for each beneficiary.

When a contribution is made to an RESP in excess of the limits indicated above, the plan becomes a revocable plan.

Every subscriber is liable to pay a 1 % per month tax on his or her share of the overcontributions that are not withdrawn at the end of the month. The tax is payable within 90 days of the end of the year in which there is an overcontribution. An overcontribution exists until it is withdrawn.

Subscribers have to inform us of their share of overcontributions to all RESPs for a beneficiary. To calculate the amount of penalty tax they have to pay on their share of overcontributions, they should complete Form T1E-OVP, Individual Income Tax Return for RESP Overcontributions for 1996 and Future Years. For 1995 and earlier years, they should use Form T1E-OVP(93), Individual Income Tax Return for Registered Education Savings Plans Over-Payments. These forms are available at tax services offices (they were also available as hand-outs at the RESP Consultation Session).

Please note that any withdrawal of overcontributions reduces the amount of overcontributions that are subject to tax. However, such a withdrawal does not reduce the total contributions made into the RESPs for a beneficiary (i.e., in determining the lifetime limit, the withdrawal still has to be included in the total of contributions).

We suggest you refer to information sheet RC4092(E) Rev.01, Registered Education Savings Plans (RESPs), for other tax-related issues (the information sheet was available as a hand-out at the RESP Consultation Session).

An accumulated income payment is defined in subsection 146.1(1) of the Act, as any amount paid from the education savings plan which is not one of the following payments:

• a refund of payments (defined in subsection 146.1(1) of the Act);
• a repayment of amounts to the Canada Education Savings Grant program;
• an education assistance payment (defined in subsection 146.1(1) of the Act);
• a payment to a designated educational institution in Canada; or
• a transfer to another RESP.

An AIP is a permitted payment from the plan, after 1997, if the following conditions under paragraph 146.1(2)(d.1) of the Act are met. At the time of payment:

• the recipient must be a resident of Canada and either:
  • a subscriber of the plan, or
  • entitled to the payment because the subscriber has died; and
• all beneficiaries for whom contributions were made under the plan have either:
  • reached age 21 and are not eligible to receive EAPs, or
  • have died,

  and, either:

  • the RESP has existed for at least 10 years, or
  • each beneficiary for whom contributions were made into the plan has died and was related to the subscriber (including nephew, niece, great nephew, and great niece).

It is possible for the original subscriber(s), or those who become the subscriber(s) due to a marriage breakdown, to reduce the 20 % additional tax by contributing the AIP (or part of it) to their RRSP or their spousal or common-law partner RRSP. The maximum amount a subscriber can contribute to his or her RRSP and spousal or common-law partner RRSP is the lesser of the RRSP room of the subscriber and $ 50,000.

If the subscriber died and there was no other subscriber under the plan, the spouse of the deceased subscriber could receive an AIP and contribute the payment to his or her RRSP.

Paragraph 146.1(2)(i.1) of the Act requires that once an AIP is made from an RESP, the plan must be terminated before March of the year following the year in which the first such payment is made out of the plan.

Paragraph 146.1(2)(g.1) of the Act requires that the plan restrict "educational assistance payments" to be made to a beneficiary enrolled as a full-time student in a "qualifying educational program" at a "post-secondary educational institution" (all three terms are defined in subsection 146.1(1) of the Act). HRDC has created a link to qualifying post-secondary institutions at the following Web page:

http://www.canlearn.ca/english/csl/master/index.cfm?var=masterlist

Alternatively, to verify the eligibility of a post-secondary institution, please call your local CCRA business window, or 1-800-959-5525. If necessary, ask the enquiry officer to access PEIB document OTHSTUDENT98.

The CCRA will not register an ESP unless certain conditions are met under subsection 146.1(2) of the Act. Neither accumulated income payments nor educational assistance payments can be made unless certain conditions are satisfied. It is the responsibility of the promoter to ensure that these conditions are met. The CCRA will accept information that promoters obtain electronically, but advises that they retain the information in case the plan is audited later.

Additional questions were posed to Mr. John O'Meara, Director, Compliance Division. Paragraph 19 of the draft RESP information circular advises promoters that they do not have to obtain receipts before making an EAP. The circular states that the promoter determines whether the EAP will help further the beneficiary's education and whether it is reasonable. Several participants requested guidelines from the CCRA regarding what would be considered a reasonable payment. Mr. O'Meara stated that it would not be possible to provide such guidelines. The varying costs of the programs being offered, combined with the varying cost of living across the country, would make such guidelines very difficult to establish.

The deadline for subscribers to provide promoters with the SIN of a beneficiary of an ESP opened in 1999 is December 31, 2001. Once the subscriber submits the required information to the promoter, an existing or a replacement ESP can be retroactively registered to 1999. The CCRA must receive the registration lists for these 1999 ESPs by March 1, 2002. The deadline for submitting listings for ESPs opened in 2000 has also been extended to March 1, 2002. The CCRA is not considering any other extensions. (Letters announcing these extensions were available as handouts.)

A "capital property" is defined in paragraph 54(b) of the Act to include depreciable property and "any property (other than depreciable property), any gain or loss from the disposition of which would, if the property were disposed of, be a capital gain or a capital loss, as the case may be, of the taxpayer."

In general, a subscriber will have certain rights under an RESP. The particular rights in each case will depend on the provisions of the specific RESP. In our opinion, where a subscriber has the right to a "refund of payments", as defined in subsection 146.1(1) of the Act, the right will be considered a capital property for purposes of the Act. A capital loss may arise, where the trust's ability to refund the total contributions previously made by a subscriber is impaired and therefore less than the value of the right (i.e., the aggregate of the subscriber's payments into the RESP). In our opinion, however, such a loss would be deemed to be "nil" in accordance with subparagraph 40(2)(g)(ii) of the Act.

WebCIMS Presentation

Our Training Coordinator, Ms. Mary Glover, and Mr. Pierre Castagner, Acting Manager, Policy and Communications Division, gave a presentation detailing the RESP pilot project with the Web-based Correspondence and Information Management System (WebCIMS). The RESP plans have been chosen for this pilot because they are the Registration Division's newest and smallest workload.

WebCIMS will eventually allow for faster response times to enquiries and submissions. It will also provide the capabilities of advanced search features and let employees retrieve files instantly at their desktop.

Ms. Glover described how WebCIMS functions in the pilot. A file folder is set up to hold all the correspondence. New correspondence becomes an attachment to the folder. Each new piece of correspondence generates an assignment and is sent to an officer's inbox. The attachment could be in the form of an Excel, Word, PowerPoint, Sound, Image, or Access file.

The assignment details the action code, status, to whom it is assigned, and the section of the directorate to which it belongs.

Ms. Glover explained the lifecycle of an assignment. Our Records Unit receives the correspondence and forwards it to our Control Unit. The Control Unit searches for an existing folder or creates a new one if required. They create the assignment and assign it to the bank. The Manager selects the assignment from the bank and assigns it to an officer. The officer reviews and completes the assignment.

The benefits of WebCIMS are that it allows for a paperless environment and better search capabilities, which in turn lead to faster turnaround times on responses. In addition, any correspondence can be viewed from the officer's own workstation.

eSubmissions Pilot Test

The eSubmissions pilot test for RESPs, to allow for electronic enquiries and submissions to RPD, was announced. Any participants who are interested in participating in this project should email the Directorate at the following address:

RPD is now ready to receive documents in MS office file formats. Any special requests for customized formats should be emailed to: Louise Toutant@ccra-adrc.gc.ca

Closing Comments

The Director General thanked his staff and all the participants for taking the time to attend this year's consultation session.