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: Is each RESP contract or plan a separate trust or can group RESPs exist as one trust? How would this interpretation interact with new subsection 207.1(3) (penalty tax for non-qualified investments)?
Position: It is a question of trust law whether a single trust is created that holds the property on behalf of several RESPs. However, if a single trust is created in this situation, the ITA rules respecting a trust governed by an RESP apply.
Reasons: Where a trust exists to hold property for one or more RESPs that trust is the subject of the rules set out in section 146.1 and subsection 207.1(3) of the Act.
December 21, 1999
HEADQUARTERS HEADQUARTERS
Robert D'Aurelio M.P. Sarazin
Director 824-5441
Registered Plans Division
Attention: Bob Searle
990579
Group RESPs
This is in reply to your memoranda dated March 1 and March 30, 1999, wherein you requested our opinion as to whether each RESP contract or plan is a separate "trust" for the purposes of section 146.1, or whether it is possible for group RESPs to be held under one trust? In addition, you asked for our views on how the responses to the preceding are impacted by the introduction of subsection 207.1(3). This new subsection applies a 1% per month tax on the fair market value of non-qualified investments acquired, for the 1999 and subsequent taxation years, by a trust governed by an RESP.
Please note that for the purpose of this memorandum we assume that investments purchased with the contributions and earnings of many RESP accounts are being held by one trust. Although we have reviewed the specimen plans submitted under cover of your memorandum of March 1, 1999, and read the submission of XXXXXXXXXX submitted under cover of your memorandum of March 30, 1999, we have not concluded that there exists a single trust for each plan or whether there is a single trust for a number of plans. It is not clear to us from the words used in the agreements (contracts) or the trust documents. XXXXXXXXXX.
You have advised that group RESPs generally operate on a pooling principle. In many specimen plans it appears that contributions made by subscribers under individual RESP contracts in respect of a group arrangement are held in a trust or in several trusts before and after maturity but that there may not be one trust created for each subscriber's RESP. For example, funds are pooled after maturity for the purpose of paying educational assistance payments ("EAPs") to beneficiaries of the same age group who qualify for EAPs
For the purposes of section 146.1 of the Act (but not, however, for the purpose of subsection 207.1(3) of the Act), a "trust" is defined in subsection 146.1(1) of the Act to be any person who irrevocably holds property pursuant to an education savings plan for a number of limited purposes.
An "education savings plan" ("ESP") is defined in subsection 146.1(1) of the Act as a contract between an individual who is the subscriber and a person or organization who is the promoter.
Under the terms of the contract, the subscriber makes contributions to the promoter in exchange for, among other things, the promoter's undertaking to make "educational assistance payments", within the meaning assigned by subsection 146.1(1) of the Act, to eligible beneficiaries. [Note, on July 20, 1999, the Department of Finance announced a proposed amendment to this definition to permit an ESP to be constituted by a trust.] A "registered education savings plan" ("RESP") is defined in subsection 146.1(1) as an education savings plan that has been registered for purposes of the Act.
The following provisions within section 146.1 of the Act also refer to a "trust":
- the definition of "accumulated income payment" in subsection 146.1(1) of the Act
- the definition of "qualified investment" in subsection 146.1(1) of the Act
- paragraphs 146.1(2)(a), (c ) and (f) of the Act relating to the registration requirements
- proposed subsection 146.1(2.1) of the Act relating to the RESP becoming revocable,
- subsections 146.1(5) and (6) of the Act relating to the non-taxation of the income of the RESP (in the RESP or to the subscriber of the RESP),
- subsection 146.1(6.1) of the Act relating to the transfer of property between RESPs and its effect on the timing of the recipient RESP's registration dates, and
- subsection 146.1(11) of the Act.
These provisions can be interpreted and administered to give effect to the group RESP situation described above. For example, where a trust holds property on behalf of several RESPs and the particular trust acquires or holds a non-qualified investment, carries on a business, or borrows money, the interpretation would be that all of the RESPs administered under the trust arrangement will become revocable under subsection 146.1(2.1) of the Act. Where the singular is used in subsection 146.1(6.1) (e.g. a trust governed by "a" registered education savings plan), one would administer the provision so that the result or consequence of that provision applies with respect to each plan.
New subsection 207.1(3) extends the application of the 1% Part X.1 penalty tax on the fair market value of all property held by a trust governed by an RESP at the end of each month that is not a qualified investment for such a trust. Although the definition of "trust" in subsection 146.1(1) of the Act does not apply for purposes of Part X.1 of the Act, the reference to "a trust governed by a registered education savings plan" as used in subsection 207.1(3) extends to any trust at common law that is governed by an RESP. This interpretation is supported by the use of similar references in subsections 207.1(1), (2) and (4) to trusts for which there are no definitions in the Act. In our view, a single trust which acquires investments for more than one RESP is subject to this provision and therefore liable for the tax should the investments not be "qualified investments" as defined in subsection 146.1(1) of the Act.
We trust that the above comments will be helpful.
P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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