Principal Issues: When does an individual have to satisfy the requirement that before an educational assistance payment (EAP) may be paid out of an RESP, the individual must be enrolled in a qualifying educational program at a post-secondary educational institution?
Position: Every time an EAP is paid from an RESP, the requirements of paragraph 146.1(g.1) of the Income Tax Act must be satisfied, and in order for the payment to be an EAP, the payment must be made to assist the individual to further the individual's education at a post-secondary school level.
Reasons: The definition of EAP in subsection 146.1(1) of the Act and the wording of paragraph 146.1(2)(g.1) of the Act.
September 8, 2004
XXXXXXXXXX
Subject: Registered Education Savings Plans
XXXXXXXXXX in response to your letter dated August 20, 2004 to the Edmonton Tax Services Office and further to our telephone conversation on August 21, 2004 concerning the payment of educational assistance payments (EAPs) from a registered education savings plan (RESP).
An EAP is defined in subsection 146.1(1) of the Income Tax Act (the "Act") to be an amount, other than a refund of payments, paid out of an education savings plan to an individual to assist the individual to further the individual's education at a post-secondary school level. It is generally assumed that a course is at a post-secondary school level if the ministry of education for the province or territory in which the course is given considers it to be at that level.
Clause 146.1(2)(g.1)(i)(A) of the Act does not permit an EAP to be paid at any time, unless at the time the EAP is paid to an individual, the individual is enrolled as a full-time student in a qualifying educational program at a post-secondary educational institution. An exception to the requirement that the individual be enrolled full-time is permitted where the individual has a physical or mental impairment that prevents the individual from enrolling as a full-time student. Where an EAP is paid and the requirements of subparagraph 146.1(2)(g.1)(i) of the Act are not satisfied, the Minister may send written notice to the promoter that the Minister intends to revoke the registered status of the plan in accordance with subsection 146.1(12.1) of the Act. To summarize, every time a promoter pays an EAP to an individual, the requirements of clause 146.1(2)(g.1)(i)(A) must be satisfied, unless the individual has a physical or mental impairment that prevents the individual from enrolling as a full-time student.
If at the time an amount is paid out of an RESP to an individual, the amount is not paid to assist the individual to further the individual's education at a post-secondary school level, the amount paid would not by definition be an EAP. The amount would therefore either be a refund of payments or an accumulated income payment paid out of an RESP and be treated for tax purposes accordingly.
Please note that at the present time there are no exceptions to the requirement that an EAP be paid to assist an individual to further the individual's education at a post-secondary school level. However, we would refer you to the "Note" under paragraph 23 of Information Circular 93-3R (available at www.cra.gc.ca), which indicates that the Department of Finance intends to change section 146.1 of the Act to ensure that an EAP can be paid to an individual enrolled in an occupational skills program at an educational institution certified by the Minister of Human Resources and Skills Development Canada.
Gary Allen
Senior Rulings Officer
Financial Industries Division
Income Tax Rulings Directorate
(613) 952-9853