RC4092 Registered Education Savings Plans

Is this guide for you?

Use this guide if you want information about the registered education savings plans. This guide has information which is not in the Income Tax and Benefit package and which you may need to fill out your income tax and benefit return. We have included definitions or some of the terms used in this guide in the Definitions sections. You may want to read this section before you start.

Definitions

This section provides a general definition of the technical terms that we use in this guide.

Advantage – an advantage is any benefit, or debt that is conditional on the existence of the RESP, subject to certain exceptions for normal investment activities and conventional incentive programs.

An advantage also includes any benefit that is an increase in the total fair market value (FMV) of the property of the RESP that is reasonably attributable to any one of the following:

• a transaction or event (or series) that would not have occurred in a normal commercial or investment context between arm’s length parties acting prudently, knowledgeably, and willingly, and one of the main purposes of which is to benefit from the tax-exempt status of the RESP
• a payment received in substitution for a payment for services rendered by the subscriber (or non-arm’s length person) or for a return on investment on non-registered property
• a swap transaction
• specified non-qualified investment income that has not been paid from the RESP within 90 days of the subscriber receiving a notice from CRA requiring removal

An advantage also includes a registered plan strip or any benefit that is income or a capital gain that is reasonably attributable to one of the following:

• a prohibited investment
• an artificial diversion of an amount away from the RESP

For more information on advantages, see Income Tax Folio S3-F10-C3, Advantages- RRSP’s, RESP’s, RRIF’s, RDSP’s and TFSA’s.

Adjusted family net income – this is your family net income minus any Canada child benefit and registered education savings plan (RESP) income received plus any Canada child benefit and RESP amounts repaid.

Arm’s length – refers to a relationship or a transaction between persons who act in their separate interests. For more information on Arm’s length, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s length.

Common law partner – a person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. They:
a) have been living with you in a conjugal relationship, and this current relationship has lasted for at least 12 continuous months

     Note

In this definition, “12 continuous months” includes any period that you were separated for less than 90 days because of a breakdown in the relationship.

b) are the parent of your child by birth or adoption
c) have custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Fair market value (FMV) – usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other.

For more information on the valuation of securities of closely-held corporations, see Information Circular IC89-3R, Policy Statement on Business Equity Valuations.

Non-arm’s length – generally refers to a relationship or transaction between persons who are related to each other.

However, a non-arm’s length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances. For more information, see Income Tax Folio S1‑F5‑C1, Related Persons and Dealing at Arm’s length.

Non-qualified investments – a non-qualified investment is property that is not a qualified investment for the RESP trust. For more information on non-qualified investments see Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Prohibited investments – this is property to which the RESP subscriber is closely connected. It includes all the following:

• a debt of the subscriber
• debt or share of, or an interest in, a corporation, trust, or partnership in which the subscriber has a significant interest (generally a 10% or greater interest, taking into account non-arm’s length holdings)
• a debt or share of, or an interest in, a corporation, trust, or partnership with which the subscriber, does not deal at arm’s length

A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation or by an approved private insurer. It also does not include certain investment funds and certain widely held investments which reflect a low risk of self-dealing. For more information on prohibited investments, see Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Registered education savings plan (RESP) – a registered contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber generally makes contributions to the RESP, which earns income, paid in the form of educational assistance payments to one or more identified beneficiaries.

Registered plan strip – the amount of a reduction in the FMV of property of the RESP, if the value is reduced as part of a transaction or event (or series) for which one of the main purposes is to enable the subscriber (or non-arm’s length person) to obtain a benefit as a result of the reduction. Exceptions are provided for plan distributions that are included in income, or specifically excluded from income (such as a tax-deferred transfer between plans). For more information on a registered plan strip, see Income Tax Folio S3‑F10‑C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Related persons are not considered to deal with each other at arm’s length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

Specified non-qualified investment income – income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to an amount that is taxable for any RESP of the subscriber (for example, subsequent generation income earned on non-qualified investment income)

Spouse – a person to whom you are legally married.

Swap transaction – this is any transfer of property between the RESP and its subscriber (or non-arm’s length person). Exceptions are provided for contributions to and distributions from the RESP, purchase and sale transactions between the RESP and another RESP of the subscriber, and transactions relating to insured mortgages. For more information on swap transactions and applicable transitional rules, see Income Tax Folio S3‑F10‑C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

What is a Registered Education Savings Plan?

A registered education savings plan (RESP) is a contract between an individual (the subscriber) and a person or organization (the promoter).

Under the contract, the subscriber names one or more beneficiaries (the future student(s)) and agrees to make contributions for them, and the promoter agrees to pay educational assistance payments (EAPs) to the beneficiaries.

Family plans are the only RESP that allow subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each living subscriber or have been so tied to a deceased original subscriber.

The Canada Revenue Agency registers the education savings plan contract as an RESP, and lifetime limits are set by the Income Tax Act on the amount that can be contributed for each beneficiary (see RESP contribution limits). Unless the RESP is a specified plan, the RESP must provide that no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 31st anniversary of the opening of the plan. Furthermore the plan has to be completed by the end of the year that includes the 35th anniversary of the opening of the plan.

The subscriber (or a person acting for the subscriber) generally makes contributions to the RESP. Subscribers cannot deduct their contributions from their income on their income tax and benefit return.

The promoter usually pays the contributions, and the income earned on those contributions, to the beneficiaries. The income earned is paid as EAPs. For more information, see Educational assistance payments.

If the contributions are not paid out to the beneficiary, the promoter usually pays them to the subscriber at the end of the contract. Subscribers do not have to include the contributions in their income when they get them back.

Beneficiaries generally receive the contributions and the EAPs from the promoter. They have to include the EAPs in their income for the year in which they receive them. However, they do not have to include the contributions they receive in their income.

Specified plan

A specified plan is essentially a single beneficiary RESP (non-family plan) under which the beneficiary is entitled to the disability tax credit for the beneficiary’s tax year that includes the 31st anniversary of the plan. Furthermore, a specified plan cannot permit another individual to be designated as a beneficiary under the RESP at any time after the end of the year that includes the 35th anniversary of the plan.

In addition, no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 35th anniversary of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the plan.

For an overview of how an RESP generally works, go to How an RESP works.

Government Grants

Canada Education Savings Grant

The Government of Canada encourages the use of Registered Education Savings Plans (RESP) to save for a child’s post-secondary education, which includes full or part-time studies at a trade school, CEGEP, college, university, or in an apprenticeship program.

Employment and Social Development Canada (ESDC) administers two education savings incentives linked to RESPs, the Canada Education Savings Grant and the Canada Learning Bond.

The Canada Education Savings Grant (CESG) consists of a basic grant of 20% on the first $2,500 in annual personal contributions to an RESP (this grant is available to all eligible children regardless of their adjusted family net income), as well as the additional amount of CESG, which is:

• 10% on the first $500 of annual personal contributions for children from families with an adjusted family net income between $46,605* and $93,208*
• 20% on the first $500 of annual personal contributions for children from families with an adjusted family net income of $46,605* or less

Every child under age 18 who is a resident of Canada will accumulate $400 (for 1998 to 2006) and $500 (from 2007 and subsequent) of unused CESG room. Unused CESG contribution room is carried forward and used when RESP personal contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.

Beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.

However, since the CESG has been designed to encourage long term savings for post-secondary education, there are specific contribution requirements for beneficiaries who attain 16 or 17 years of age. Beneficiaries who are 16 and 17 years old may be eligible to receive the CESG if at least one of the following two conditions is met:

• a minimum of $2,000 was contributed to (and not withdrawn from) the RESP of the child before the end of the calendar year the beneficiary turned 15
• a minimum annual contribution of $100 was made to (and not withdrawn from) the RESP in at least four of the years before the end of the calendar year the beneficiary turned 15

This means that you must start to save in RESPs for your child before the end of the calendar year in which your child turns 15 years of age in order for your child to be eligible to receive the CESG.

The CESG and accumulated earnings will be part of the EAPs paid out of the RESP to the beneficiary.

If the beneficiary does not pursue post-secondary education, the CESG is returned to the government.

Canada Learning Bond

ESDC provides an additional incentive of up to $2,000 to help low-income families start saving early for their child’s education after high school (post-secondary education).

The Canada learning bond (CLB) money will be deposited directly into the child’s RESP.

The CLB is available for eligible children from low-income families born in 2004 or later and provides an initial payment of $500 plus $100 for each year of eligibility, up to age 15, for a maximum of $2,000. Personal contributions are not required to receive the CLB. To help cover the cost of opening an RESP, ESDC will pay $25 into the RESP to which the initial CLB of $500 is deposited in recognition of a one-time incidental expense that may be associated with opening the RESP account.

Children who are in care of a public primary caregiver for whom a special allowance under the Children’s Special Allowance Act is paid, are also entitled to the CLB.

If the beneficiary does not pursue post-secondary education, the CLB is returned to the government.

For more information on the CLB, call 1-800-O-CANADA (1-800-622-6232).

Quebec Education Savings Incentive (QESI)

The Quebec education savings incentive (QESI) is a tax measure that encourages Quebec families to start saving early for the education of their children and grandchildren.

The incentive, which came into effect on February 21, 2007, consists of a refundable tax credit that is paid directly into a registered education savings plan (RESP) opened with an RESP promoter that offers the QESI.

For the credit to be paid to your account, the trustee designated by your RESP promoter must apply for it with Revenu Quebec.

If you wish to open an RESP, you may contact an RESP promoter that offers the QESI such as any of the following:

• a financial institution
• a group plan dealer
• a financial service provider

For more information, go to Revenu Quebec or call Service Quebec at 1-877-644-4545.

BC Training and Education Savings Grant Program (BCTESG)

Families in British Columbia are encouraged to start planning and saving early for their children’s post-secondary education or training program. To help, the B.C. Government will contribute a grant of $1,200 to eligible children through the BCTESG.

To be eligible for the BCTESG, a child must meet the following three criteria:

• the child was born in 2006 or later
• at the time of application the child and a parent/guardian of the child are residents of British Columbia
• at the time of application the child is the beneficiary of an RESP with a participating financial institution

Children are eligible for the BCTESG on their sixth birthday up until the day before their ninth birthday.

The BC Government has extended the eligibility criteria for children born in 2006. If your child was born in 2006, you have an extension until August 14, 2019, to get the grant.

For more information, go to Province of British Columbia or call 1-888-276-3624.

Who can be a subscriber?

Except for family plans, generally, there are no restrictions on who can be the original subscriber under an RESP:

• You and your spouse or common-law partner, as defined in our guides, can be joint original subscribers under an RESP.
• A public primary caregiver of a beneficiary under an RESP may also be an original subscriber. A public primary caregiver is one who receives a special allowance under the Children’s Special Allowances Act and may be either of the following:
  • the department, agency or institution that cares for the beneficiary
  • the public trustee or public curator of the province in which the beneficiary resides

If you are not the original subscriber, you can become a subscriber only if one of the following situations applies:

• you are a spouse or common-law partner, or ex-spouse or former common-law partner, of a subscriber and you get the subscriber’s rights under the RESP as a result of a court order or written agreement for dividing property after a breakdown of the relationship
• you are another individual or another public primary caregiver who has, under a written agreement, acquired a public primary caregiver’s rights as a subscriber under the RESP
• you acquired the subscriber’s rights under the RESP, or you continue to make contributions into the RESP for the beneficiary, after the death of a subscriber under the RESP
• you are the deceased subscriber’s estate that acquired the subscriber’s rights under the RESP, or that continues to make contributions into the RESP for the beneficiary, after the death of a subscriber under the RESP

All subscribers under an RESP have to give their social insurance number (SIN) to the promoter before CRA can register the RESP.  Where the subscriber is a public primary caregiver, we request that they provide the promoter with their business number.

Who can become a beneficiary?

You can designate an individual as a beneficiary under the RESP only if both of the following conditions are met:

• the individual’s SIN is given to the promoter before the designation is made
• the individual is a resident of Canada when the designation is made

RESP contributions

You will be able to make contributions for a beneficiary only if one of the following two conditions is met:

• the beneficiary’s SIN is given to the promoter before the contribution is made and the beneficiary is a resident of Canada
• the contribution is made by way of a transfer from another RESP under which the individual was a beneficiary immediately before the transfer

Generally, you can contribute to family plans for beneficiaries who are under 31 years of age at the time of the contribution. However, transfers can be made from another family plan even if one or more of the beneficiaries are 31years of age or older at the time of the transfer.

RESP contracts can take advantage of the new age limit as long as the specimen plan under which the contract is held is amended. The amendment must be applicable for 2008 and subsequent taxation years.

RESP contributions cannot be deducted from your income on your income tax and benefit return. In addition, you cannot deduct the interest you paid on money you borrowed to contribute to an RESP.

RESP contribution limits

For 2007 and later years, there is no annual limit for contributions to RESPs, however, the lifetime limit on the amounts that can be contributed to all RESPs for a beneficiary is $50,000.

Payments made to an RESP under the Canada Education Savings Act or under a designated provincial program are not included when determining if the lifetime limit has been exceeded.

Tax on RESP excess contributions

An excess contribution occurs at the end of a month when the total of all contributions made by all subscribers to all RESPs for a beneficiary is more than the lifetime limit for that beneficiary. We do not include payments made to an RESPunder the Canada Education Savings Act or any designated provincial program when determining whether a beneficiary has an excess contribution.

Each subscriber for that beneficiary is liable to pay a 1% per-month tax on their share of the excess contribution that is not withdrawn by the end of the month. The tax is payable within 90 days after the end of the year in which there is an excess contribution. An excess contribution exists until it is withdrawn.

You have to inform us of your share of the excess contribution to all RESPs for a beneficiary. To calculate the amount of tax you have to pay on your share of the excess contribution for a year, fill out Form T1E-OVP, Individual Tax Return for RESP excess contributions.

You can get this form on our web site by going to Forms and publications. Send your completed T1E-OVP return to the following address:

Registered Plans Directorate
Canada Revenue Agency
Ottawa ON K1A 0L5

Waiver of liability

We may waive or cancel all or part of the taxes if we determine it is fair to do so after reviewing all factors, including whether the tax arose because of a reasonable error and whether the tax also gave rise to more than one tax under the Income Tax Act. To consider your request, we need a letter that explains why the tax liability arose, and why it would be fair to cancel or waive all or part of the tax. Send your letter to the following address:

Registered Plans Directorate
Canada Revenue Agency
Ottawa ON K1A 0L5

There are limits on the amounts that can be contributed to RESPs for a beneficiary.

For each beneficiary, the annual limit for contributions to all RESPs is the following:

• for 1996 is $2,000
• for 1997 to 2006 is $4,000
• for 2007 and subsequent years, there is no limit

For each beneficiary, the lifetime limit for contributions to all RESPs is the following:

• for 1996 to 2006 is $42,000
• for 2007 and subsequent years, is $50,000

For more information, go to Example – Tax on RESP excess contributions.

Payments from an RESP

The promoter can make the following types of payments:

• refund of contributions to the subscriber or to the beneficiary
• educational assistance payments (EAPs)
• accumulated income payments (AIPs)
• payment to a designated educational institution in Canada (for more information, see Information Circular IC93-3R, Registered Education Savings Plans
• repayment of amounts under the Canada Education Savings Act or under a designated provincial program
• transfers to another RESP

Refund of contributions to the subscriber or the beneficiary

Subject to the terms and conditions of the RESP, the promoter can return your contributions to you tax-free when the contract ends or at any time before. Promoters do not issue a T4A slip, Statement of Pension, Retirement, Annuity and Other Income, to report these payments. Do not include these payments as income on your income tax and benefit return.

The promoter can also pay the contributions tax-free to the beneficiary. This is in addition to any taxable educational assistance payments. Refer to the next section for more details.

Educational Assistance Payments

An educational assistance payment (EAP) is the amount paid to a beneficiary (a student) from an RESP to help finance the cost of post-secondary education. An EAP consists of the Canada education savings grant, the Canada learning bond, amounts paid under a designated provincial program and the earnings on the money saved in the RESP. The promoter reports EAPs in box 042 on a T4A slip and sends a copy to the student. The student includes the EAPs as income on their income tax and benefit return for the year the student receives them.

The promoter can only pay EAPs to or for a student if one of the following situations applies:

• the student is enrolled in a qualifying educational program. This includes students attending a post-secondary educational institution and those enrolled in distance education courses, such as correspondence courses, provided by such institutions
• the student has attained the age of 16 years and is enrolled in a specified educational program

A beneficiary is entitled to receive EAPs for up to six months after ceasing enrolment, provided that the payments would have qualified as EAPs if the payments had been made immediately before the student’s enrolment ceased.

A qualifying educational program is an educational program at post-secondary school level, that lasts at least three consecutive weeks, and that requires a student to spend no less than 10 hours per week on courses or work in the program.

A specified educational program is a program at post-secondary school level that lasts at least three consecutive weeks, and that requires a student to spend not less than 12 hours per-month on courses in the program.

A post-secondary educational institution includes all the following:

• a university, college, or other designated educational institution in Canada
• an educational institution in Canada certified by ESDC as offering non-credit courses that develop or improve skills in an occupation
• a university outside Canada that has courses at the post-secondary school level at which a beneficiary was enrolled on a full-time basis in a course of not less than three consecutive weeks
• a university, college, or other educational institution outside Canada that has courses at the post-secondary school level at which a beneficiary was enrolled in a course of not less than 13 consecutive weeks

Limit on EAPs

For RESPs entered into after 1998, the maximum amount of EAPs that can be made to a student as soon as they qualify to receive them is one of the following:

• for studies in a qualifying educational program – $5,000, for the first 13 consecutive weeks in such a program. After the student has completed the 13 consecutive weeks, there is no limit on the amount of EAPs that can be paid if the student continues to qualify to receive them. If there is a 12-month period in which the student is not enrolled in a qualifying educational program for 13 consecutive weeks, the $5,000 maximum applies again
• for studies in a specified educational program – $2,500, for the 13-week period whether or not the student is enrolled in such a program throughout that 13-week period

Subject to the terms and conditions of the RESP, the promoter can supplement the $5,000 or $2,500 EAP by paying a portion of the contributions tax-free to the beneficiary.

ESDC may, on a case-by-case basis, approve an EAP amount of more than the above limit if the cost of tuition plus related expenses for a particular program is substantially higher than the average. For more information on how to request approval of an EAP of more than $5,000 or $2,500, promoters should call the Canada Education Savings Program at 1-888-276-3624.

Accumulated income payments

Accumulated income payments (AIPs) are amounts, usually paid to the subscriber, of the income earned from an RESP. An AIP does not include any of the following:

• the payment of EAPs
• payments to a designated educational institution in Canada
• the refund of contributions to the subscriber or to the beneficiary
• transfers to another RESP
• repayments under the Canada Education Savings Act or under a designated provincial program

AIPs cannot be made as a single joint payment to separate subscribers.

An RESP may allow for AIPs when both of the following conditions are met:

• the payment is made to, or for, a subscriber under the RESP who is resident in Canada
• the payment is made to, or for, only one subscriber of the RESP

Also, any one of the following three conditions must apply:

• the payment is made after the year that includes the 9th anniversary of the RESP and each individual (other than a deceased individual) who is or was a beneficiary has reached 21 years of age and is not currently eligible to receive an EAP (see Note on page 13)
• the payment is made in the year that includes the 35th anniversary of the RESP, unless the RESP is a specified plan (see the definition on page 6) in which case the payment is made in the year that includes the 40th anniversary of the RESP
• all the beneficiaries under the RESP are deceased when the payment is made

An RESP must be terminated by the end of February of the year after the year in which the first AIP is paid.

How AIPs are taxed

Promoters report AIPs in box 040 of a T4A slip, Statement of Pension, Retirement, Annuity and Other Income, and send a copy to the recipient of the AIP. The recipient has to include the AIP as income on their income tax and benefit return for the year they receive it. An AIP is subject to two different taxes: the regular income tax and an additional tax of 20% (12% for residents of Quebec).

Regular tax – This is the tax you calculate when you fill out your income tax and benefit return. It is based on your total taxable income.

Additional tax – You calculate this tax separately, using Form T1172, Additional Tax on Accumulated Income Payments from RESPs. Include a filled out copy of Form T1172 with your income tax and benefit return for the year you receive the AIP. You have to pay the additional tax by the balance due date for your regular tax, usually April 30 of the year that follows the year in which you received the AIP.

Reducing the amount of AIPs subject to tax – You can reduce the amount of AIPs subject to tax up to a lifetime maximum of $50,000, if you are the original subscriber, you acquired the former subscribers’ rights as a consequence of marriage breakdown or, where there is no subscriber of the plan, you are or were the spouse or common-law partner of a deceased subscriber and you meet both of the following conditions:

• You contribute the amount to your registered retirement savings plan (RRSP), pooled registered pension plan (PRPP), or specified pension plan (SPP) or your spouse’s or common-law partner’s RRSP or SPP, in the year the AIPs are received or in the first 60 days of the following year.
• Your RRSP deduction limit allows you to deduct the amount contributed to your RRSP, PRPP, or SPP or your spouse’s or common-law partner’s RRSP or SPP on line 208 of your income tax and benefit return. Claim the deduction for the year in which any payments are made.

You cannot reduce the AIPs subject to tax if you became a subscriber under the plan after the death of the original subscriber.

By claiming a deduction for a contribution to your RRSP, PRPP, or SPP, you reduce your taxable income, which reduces your regular tax. The deduction for the contribution also reduces the amount of additional tax payable by reducing the amount of AIPs subject to tax (see Form T1172). If the amount of the deduction for the contribution equals the amount of the AIPs, the taxes on the AIPs are zero.

Promoters usually have to withhold regular and additional taxes on AIPs. However, they do not have to withhold tax if both of the following apply:

• the AIPs are transferred directly to your RRSP, PRPP, or SPP or your spouse’s or common-law partner’s RRSP or SPP
• your RRSP deduction limit allows you to deduct the contribution in the year it is made

Fill out Form T1171, Tax Withholding Waiver on Accumulated Income Payments from RESPs, to ask the promoter to transfer the payment directly to your RRSP, PRPP or SPP or your spouse’s or common-law partner’s RRSP or SPP without withholding tax.

For more information, go to Example – How AIPs are taxed.

Special rules

Changing the beneficiary

Generally, where an individual becomes a beneficiary “a new beneficiary” in place of another beneficiary “a former beneficiary” we treat the contributions for the former beneficiary as if they had been made for the new beneficiary on the date they were originally made. If the new beneficiary already has an RESP, this may create an excess contribution.

An exception to the general rule applies in certain limited situations. The exception ensures that the contribution history of the former beneficiary is not added to the contribution history of the new beneficiary in the determination of whether the new beneficiary’s lifetime contribution limit has been exceeded. Either of the following situations are exceptions:

• the new beneficiary is under 21 years of age and the parent of the new beneficiary was a parent of the former beneficiary
• both beneficiaries are connected by a blood relationship or adoption to the original subscriber under the RESP and both beneficiaries are under 21 years of age

Transferring RESP property to another RESP

Most transfers from one RESP to another RESP will have no tax implications. This is the case when the transferring RESPand the receiving RESP have the same beneficiary. There are also no tax implications when a beneficiary under the transferring RESP has a brother or sister (under 21 years of age at the time the receiving plan was entered into, unless the receiving plan is a family plan) who is a beneficiary under the receiving RESP.

In any other case, transfers can result in an excess contribution. This is because the RESP contribution history for each beneficiary under the transferring RESP is assumed by each beneficiary under the receiving RESP. We treat each contribution as if it had been made into the receiving RESP. In addition, we treat each subscriber under the transferring RESP as a subscriber under the receiving RESP. This means that they are liable for any tax on excess contribution.

Currently, a transfer of assets between individual RESPs may result in tax penalties and the repayment of the Canada Education Savings Grants and Canada Learning Bonds when the transfer occurs between plans held by siblings and the plan receiving the transfer amount is held by a sibling whose age exceeds 21.

Transfers of assets that occur after 2010 will allow these transfers without penalties and repayments if the plan receiving the transfer amount allows more than one beneficiary at a time or the beneficiary of a plan receiving the transfer of assets had not reached 21 years of age when the plan was opened.

Rolling over RESP property on a tax-deferred basis to an RDSP

Rollovers can be made after 2013 from an RESP to an RDSP. In general terms, a subscriber of an RESP that allows accumulated income payments and a holder of an RDSP may jointly elect in prescribed form to rollover an accumulated income payment under the RESP to the RDSP if, at the time of the election, the RESP beneficiary is also the beneficiary under the RDSP.

To qualify for an education savings rollover, the beneficiary must meet the existing age and residency requirements in relation to RDSP contributions. As well, one of the following conditions must be met:

• the beneficiary is, or will be, unable to pursue post-secondary education because they have a severe and prolonged mental impairment
• the RESP has been in existence for at least 35 years
• the RESP has been in existence for at least 10 years and each beneficiary under the RESP has attained 21 years of age and is not eligible to receive educational assistance payments

The education savings rollover to an RDSP will not be subject to regular income tax or the additional 20% tax. The RESPpromoter must send Form RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan to the RDSP issuer and keep a copy of it on file. This will satisfy the RESP promoter’s requirement to file the election with the Canada Revenue Agency.

When an education savings rollover occurs, contributions in the RESP will be returned to the RESP subscriber on a tax-free basis. As well, CESGs and CLBs in the RESP will be required to be repaid to ESDC and the RESP terminated by the end of February of the year after the year during which the rollover is made.

All of the following conditions will apply to the education savings rollover to an RDSP so that it:

• will be considered a private contribution for the purpose of determining whether the RDSP is a primarily government-assisted plan (PGAP), but will not attract Canada disability savings grants (CDSGs)
• will be included in the taxable portion of RDSP withdrawals made to the beneficiary
• may not exceed, and will reduce the RDSP contribution lifetime limit of $200,000

An education savings rollover cannot be made if the beneficiary meets one of the following:

• is not eligible for the disability tax credit (DTC)
• has died
• is over 59 years of age in the year of the contribution
• is not a resident of Canada

An education savings rollover cannot be made if the RDSP holder has not provided their consent to the rollover.

Anti-Avoidance Rules for RESP

Effective March 22, 2017, the anti-avoidance rules governing the registered plans have been extended to the registered education savings plans.

The rules provide for a special tax on certain advantages that unduly exploit the tax attributes of an RESP, as well as special taxes on prohibited investments and on non-qualified investments.

Tax payable on prohibited investments

After March 22, 2017, if the RESP trust acquires a prohibited investment or if previously acquired property becomes prohibited, the investment will be subject to a special tax equal to 50% of the fair market value of the investment.

The tax is equal to 50% of the fair market value (FMV) of the property at the time it was acquired or it became prohibited.

The tax is refundable in certain circumstances. For more information, see Refund of taxes paid on non-qualified or prohibited investments. If the RESP trust acquired a prohibited investment after March 22, 2017, or if a previously acquired property becomes a prohibited investment after March 22, 2017, the investment will be subject to a special tax, and the subscriber must file Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs.

If the prohibited investment ceases to be a prohibited investment while it is held by the RESP trust, the RESP trust is considered to have disposed of and immediately re-acquired the property at its FMV.

The subscriber is also liable for the 100% advantage tax on income earned and capital gains realized on prohibited investments.

The 100% advantage tax applies to income earned, and the portion of any realized capital gain that accrued, after March 22, 2017, regardless of when the prohibited investment generating the income or gain was acquired.

For more information, see Income Tax Folio S3–F10–C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

Tax payable on non-qualified investments

After March 22, 2017, if the RESP trust acquires property that is a non-qualified investment or if previously acquired property becomes non-qualified, a tax is imposed on the subscriber of the RESP.

The tax is equal to 50% of the FMV of the property at the time it was acquired or it became non-qualified.

The tax is refundable in certain circumstances. For more information, see Refund of taxes paid on non-qualified or prohibited investments.

The subscriber is also liable for the 100% advantage tax on non-qualified investment income if this income is not withdrawn promptly.

If the RESP trust acquired a non-qualified investment after March 22, 2017, or if a previously acquired property becomes a non-qualified investment after March 22, 2017, the investment will be subject to a special tax, and the subscriber must file Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs.

For more information, see Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs, Income Tax.

Refund of taxes paid on non-qualified or prohibited investments

You may be entitled to a refund of the 50% tax on non‑qualified or prohibited investments if the investment was disposed of, or ceases to be a non-qualified or prohibited investment, before the end of the calendar year after the year in which the tax arose (or such later time as is permitted by the Minister of National Revenue).

However, no refund will be issued if it is reasonable to expect that the holder knew, or should have known, that the investment was or would become a non-qualified or a prohibited investment.

The refund applies to the 50% tax on non-qualified or prohibited investments but not to the 100% tax on advantages.

Note

If the 50% tax on non-qualified or prohibited investments, and the entitlement to the refund of that tax, arose in the same calendar year then a remittance of the tax is not required. For example, no remittance of tax would be required if an RDSP trust acquired and disposed of a non-qualified investment in the same calendar year.

How to claim a refund

To claim a refund, you must:

• send your request in writing (you can attach it to Form RC339)
• attach the appropriate documents detailing the information relating to the acquisition and disposition of the non-qualified or prohibited property (you can attach the written request and supporting documents to Form RC339)

The documents must contain the following:

• name and description of the property
• number of shares or units
• date the property was acquired or became non-qualified or prohibited property
• date of the disposition or the date that the property became qualified or ceased to be prohibited

Obligations of the RESP promoter

After March 22, 2017, the promoter of an RESP must exercise the care, diligence and skill of a reasonably prudent person to minimize the possibility that a trust governed by the plan holds a non-qualified investment.

If the promoter fails to comply with this obligation, the promoter is liable to a penalty under the ITA.

The promoter will also be required to notify the subscriber of the RESP, in prescribed form and manner before March of a calendar year, if at any time in the preceding year the RESP trust acquired or disposed of a non-qualified investment, if a qualified investment became a non-qualified investment, or if a non-qualified investment became a qualified investment.

Changes to the tax treatment of RESPs

For investments acquired after March 22, 2017 (or investments acquired before March 23, 2017, that cease to be qualified investments after March 22, 2017), the 1% per month penalty tax imposed on an RESP trust that holds a non-qualified investment is repealed, and instead the RESP trust will be subject to Part I tax on its income (including capital gains) from the investment. In addition, an RESP’s registration would no longer become revocable as a result of the RESP trust’s acquisition after March 22, 2017, of a non-qualified investment.

Reporting requirements by the RESP trust

Financial institutions are required to report information to CRA and the subscriber when an RESP trust begins or ceases to hold a non-qualified investment in a year.

Financial institutions must, by no later than the end of February in the year following the year in which the non-qualified property was acquired or previously acquired property became non-qualified, provide relevant information to us and the subscriber.

This information includes all of the following:

• a description of the non-qualified investment
• the date that the non-qualified investment was acquired or disposed of (or became or ceased to be non-qualified), as applicable, and the FMV of the investment at that date
• the RESP contract or account number

This information is necessary to enable the subscriber to determine the amount of any tax payable or of any possible refund of tax previously paid.

If you determine that a particular non-qualified investment held by your RESP trust is also a prohibited investment for the RESP trust, contact your promoter.

Tax payable on an advantage

A 100% tax on advantages will be applied to transactions occurring, income earned and capital gains accruing after March 22, 2017.

If the subscriber or a person not dealing at arm’s length with the subscriber (including the subscriber of the RESP) was provided with an advantage in relation to their RESP during the year, a tax is payable which is:

• in the case of a benefit, the FMV of the benefit
• in the case of a loan or a debt, the amount of the loan or debt
• in the case of a registered plan strip, the amount of the registered plan strip

The tax is payable by the RESP subscriber, unless the advantage is extended by the promoter, in which case it is payable by the promoter.

When the advantage is extended by the promoter of an RESP, the promoter must file Form RC298, Advantage Tax Return for RRSP, TFSA or RDSP Issuers, or RESP Promoters or RRIF Carriers.

An RESP subscriber subject to this tax is required to file Form RC339, Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs. The return must be filed no later than June 30 of the following year. Any tax owing must also be paid by that date.

For more information, see Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs, Income Tax.

Waiver of liability or cancellation

We may waive or cancel all or part of the taxes if we determine it is fair to do so after reviewing all factors, including whether:

• the tax arose because of a reasonable error
• the extent to which the transaction or series of transactions that gave rise to the tax also gave rise to another tax under the Income Tax Act
• the extent to which payments have been made from the RESP

The waiver is limited to tax paid under the anti-avoidance rules and not taxes paid under any other part of the Income Tax Act.

To consider your request, we need a letter that explains why the tax liability arose, why this is a reasonable error, and why it would be fair to cancel or waive all or part of the tax.

Send your letter to one of the following addresses:

Canada Revenue Agency
Pension Workflow Team
Sudbury Tax Centre
PO Box 20000, Station A
Sudbury ON  P3A 5C1

or

Canada Revenue Agency
Pension Workflow Team
Winnipeg Tax Centre
PO Box 14000, Station Main
Winnipeg MB  R3C 3M2

Online services

My Account

The CRA’s My Account service is fast, easy, and secure. Find out how to register at My Account for Individuals.

Use My Account to:

• view your benefit and credit information
• view your notice of assessment
• change your address, direct deposit information, and marital status
• register to receive email notifications from the CRA when you have mail to view in My Account and when important changes are made on your account
• check your TFSA contribution room and RRSP deduction limit
• check the status of your tax return
• view and print your proof of income statement (option ”C” print)
• send documents to the CRA
• send an enquiry about your audit
• link between your CRA My Account and My Service Canada Account

Receiving your CRA mail online

Sign up for the CRA’s email notifications from the CRA service to get most of your CRA mail, like your notice of assessment online.

For more information, go to email notifications from the CRA.

MyCRA mobile app

Use MyCRA throughout the year to:

• view the amounts and dates of your personal benefit and credit payments
•  check your TFSA contribution room
• change your address, direct deposit information, and marital status
• let us know if a child is no longer in your care
• register to receive email notifications from the CRA when you have mail to view in My Account and when important changes are made on your account
• request your proof of income statement (option “C” print)

Getting ready to file your income tax and benefit return? Use MyCRA to:

• check your RRSP deduction limit
• look up a local tax preparer
• see what tax filing software the CRA has certified

Done filing? Use MyCRA to:

• check the status of your tax return
• view your notice of assessment

For more information, go to MyCRA mobile app.

Electronic payments

Make your payment using:

• your financial institution’s online or telephone banking services
• the CRA’s My Payment service at My Payment
• your credit card through one of the CRA’s third party service providers
• pre-authorized debit at My Account for Individuals

For more information on all payment options, go to Make a payment to the Canada Revenue Agency.

For more information

What if you need help?

If you need more information after reading this guide, visit Canada Revenue Agency or call 1-800-959-8281.

Electronic mailing lists

The CRA can notify you by email when new information on a subject of interest to you is available on the website. To subscribe to the electronic mailing lists, go to Electronic mailing lists.

Forms and publications

To get our forms and publications, go to Forms and publications or call 1-800-959-8281.

Tax Information Phone Service (TIPS)

For personal and general tax information by telephone, use our automated service, TIPS, by calling 1-800-267-6999.

Teletypewriter (TTY) users

If you have a hearing or speech impairment and use TTY call 1-800-665-0354.

If you use an operator-assisted-relay service, call our regular telephone numbers instead of the TTY number.

Service-related complaints

You can expect to be treated fairly under clear and established rules, and get a high level of service each time you deal with the Canada Revenue Agency (CRA); see the Taxpayer Bill of Rights.

If you are not satisfied with the service you received, try to resolve the matter with the CRA employee you have been dealing with or call the telephone number provided in the CRA’s correspondence. If you do not have contact information, go to Contact information.

If you still disagree with the way your concerns were addressed, you can ask to discuss the matter with the employee’s supervisor.

If you are still not satisfied, you can file a service complaint by filling out Form RC193, Service-Related Complaint. For more information and how to file a complaint, go to Make a service complaint.

If the CRA has not resolved your service-related complaint, you can submit a complaint with the Office of the Taxpayers’ Ombudsman.

Formal disputes (objections and appeals)

If you disagree with an assessment, determination, or decision, you have the right to register a formal dispute.

Reprisal complaint

If you have previously submitted a service-related complaint or requested a formal review of a CRA decision and feel that, as a result, you were treated unfairly by a CRA employee, you can submit a reprisal complaint by filling out Form RC459, Reprisal Complaint.

For more information about complaints and disputes, go to Reprisal complaints.

Related forms and publications

Forms

• RC193 – Service-Related Complaint
• RC298 – Advantage Tax Return for RRSP, TFSA or RDSP Issuers, RESP Promoters or RRIF Carriers
• RC339 – Individual Return for Certain Taxes for RRSPs, RRIFs, RESPs or RDSPs
• RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan
• RC459, Reprisal Complaint
• T1E-OVP – Individual Tax Return for RESP Excess Contributions
• T1171 – Tax Withholding Waiver on Accumulated Income Payments from RESPs
• T1172 – Additional Tax on Accumulated Income Payments from RESPs
• T4A – Statement of Pension, Retirement, Annuity, and Other Income

Income Tax Folios

• S3-F10-C1   Qualified Investments- RRSPs, RESPs, RRIFs, RDSPs and TFSAs
• S3-F10-C2   Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs
• S3-F10-C3   Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Information Circular

• IC93-3R2 – Registered Educational Savings Plans

Link to Source:https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4092/registered-education-savings-plans-resps-2016.html