25 April 1996 External T.I. 9524595 - RESP FOR CHILD OR GRANDCHILD

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether an individual can set up a trust that would qualify as a RESP for their child or grandchild or would subsection 74.1(2) apply?

Position:

Subsection 74.1(2) will apply.

Reasons:

The RESP rules require that there be an individual-promoter relationship and you need 150 subscribers to be a promoter. Therefore the attribution rules in subsection 74.1(2) will apply to any amounts paid to the trust.

								952459
XXXXXXXXXX						A. Seidel
(613) 957-8974

April 25, 1996

Dear Sirs:

This is in reply to your letter dated September 1, 1995, concerning registered education savings plans. In particular, you are considering establishing an education-trust account for a grandchild. We apologize for the delay in replying to you.

The situation described in your letter relates to an actual proposed transaction. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R2 ("IC 70-6R2") dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, a copy of which is attached for your information. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments with respect to registered education savings plans ("RESP").

Section 146.1 of the Income Tax Act (the "Act") outlines the requirements that an education savings plan must meet to qualify as a RESP. Revenue Canada has summarized these requirements in Information Circular 93-3 ("IC 93-3"), a copy of which is attached for your information. As outlined in IC 93-3, an education trust account described would not qualify as a RESP if all of the requirements for a RESP are not satisfied. For example, the requirement described in paragraph 4 of IC 93-3 would not be satisfied if there is no contract between an individual and a promoter.

When an individual contributes cash to an education trust account which does not qualify for treatment as a RESP, and the beneficiary is a child or grandchild of the individual, the provisions of subsection 74.1(2) of the Act would apply to attribute the earnings in the education trust account to the individual who made the contributions.

These comments are provided in accordance with the guidelines set out in paragraph 21 of IC 70-6R2 and are therefore not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Enclosures