Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Would bonus interest payments paid directly into an RESP be considered contributions to the RESP by the subscriber for purposes of calculating the RESP annual limit for the year?
Position: No.
Reasons:
Where bonus interest on an investment held by an RESP is paid directly to the RESP, the bonus interest paid will not be considered a contribution made into the plan for purposes of sections146.1 and 204.9 of the Act.
XXXXXXXXXX 2001-011402
Karen Power, CA
January 30, 2002
Dear XXXXXXXXXX:
Re: Bonus Interest Paid to a Registered Education Savings Plan ("RESP")
This is in reply to your letter of December 5, 2001, wherein you requested our views on whether the payment of bonus interest directly into an RESP will be considered a contribution to the RESP by the subscriber for purposes of calculating the RESP annual limit for the year.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 entitled Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax service office. The foregoing comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency.
We would have to look at the purpose of the bonus interest, including the particular investments that are being paid the bonus interest, to determine how it should be treated for purposes of the Income Tax Act (the "Act"). Where a debtor has a contractual obligation to pay bonus interest in respect of a qualified investment held by an RESP, the bonus interest will be considered a return on its investments and will not be considered a contribution made into the plan for purposes of sections146.1 and 204.9 of the Act. Where the bonus interest does not relate to qualified investments held by the RESP, but such interest is directed to an RESP, the bonus interest will be considered a contribution made into the plan for purposes of sections146.1 and 204.9 of the Act.
Subsection 146.1(2) of the Act sets out the requirements for registration of an educational savings plan. Paragraph 146.1(2)(k) of the Act provides that contributions to an RESP in respect of a beneficiary for a year cannot exceed the RESP annual limit for the year. In addition, section 204.9 of the Act provides for a special tax to be paid by subscribers with respect to overcontributions made to RESPs.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4 and may be obtained on the Internet at http://www.ccra-adrc.gc.ca/menu/EmenuKKB.html.
Yours truly,
Mickey Sarazin, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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