Principal Issues: Can the CRA confirm that it is possible to indirectly change subscribers through a transfer between two RESPs having the same beneficiary?
Position: Yes, provided the arrangement entered into with the promoter allows it.
Reasons: The RESP rules allow transfers from one RESP to another. However, subsection 146.1(6.1) provides special rules for such transfers. In addition, in a situation where both RESPs have the same beneficiary, subsection 204.9(5) ensures that the transfer will not, in and of itself, result in Part X.4 tax consequences.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 10
Registered Education Savings Plan - Change of Subscriber
Grandfather A is the subscriber to a registered education savings plan ("RESP") for his granddaughter, who lives in Canada. Grandfather A now lives in the United States. He wishes to amend the RESP to change the subscriber and name his son (the father of his granddaughter) as the subscriber. The definition of "subscriber" in subsection 146.1(1) does not permit a change of subscriber. However, on its website, the CRA indicates that it is possible to transfer amounts from one RESP to another RESP that has a different subscriber but the same beneficiary. It appears to us that such a transfer between RESPs would be an alternative solution, given the impossibility of changing the subscriber of the RESP established by Grandfather A for his granddaughter.
Question to the CRA
Can the CRA confirm that the contemplated objective can indeed be achieved indirectly through a transfer between RESPs?
CRA Response
Such a transfer will be possible subject to the terms of the arrangement with the promoter. The provisions applicable to RESPs allow the transfer of amounts from one RESP to another. In fact, subsection 146.1(6.1) provides special rules for transfers of property from one RESP to another.
Paragraph 146.1(6.1)(b) provides that, for the purposes of the application of paragraphs 146.1(2)(d.1), 146.1(2)(h) and 146.1(2)(i) the receiving RESP shall be deemed to have been entered into on the earlier of the day it was entered into, and the day the transferring RESP was entered into. Thus, depending on the circumstances, that paragraph could cause the years of existence of the transferring RESP to be taken into account in determining when "accumulated income payments" (footnote 1) may be made under the receiving RESP pursuant to 146.1(2)(d.1). If applicable, those years would also be taken into account in determining the maximum duration of the receiving RESP provided in paragraph 146.1(2)(i) and determining the period during which contributions may be made into the receiving RESP pursuant to paragraph 146.1(2)(h). Finally, paragraph 146.1(6.1)(c) provides that, notwithstanding subsections 146.1(7) and 146.1(7.1), no amount is to be included in computing the income of any person because of the transfer.
However, depending on the circumstances, a transfer between RESPs could result in the subscriber of the transferring RESP, the receiving RESP, or both, having to pay tax under subsection 204.91(1). In the situation described, as Grandfather A's granddaughter was the sole beneficiary of the transferring and receiving RESP, the transfer would not, in itself, result in an excess in respect of that beneficiary.
However, for purposes of Part X.4, after the transfer, Grandfather A would be considered to be a subscriber of the receiving RESP by virtue of paragraph 204.9(5)(e). That could result in tax being payable under subsection 204.91(1) after the transfer, if, for example, there was an excess before the transfer, or if an excess arose in the year of the transfer and Grandfather A had a "subscriber’s gross cumulative excess", within the meaning of subsection 204.91(1), in respect of that excess.
Dominic-Jean Gagnon
(418)634-2991
October 11, 2019
2019-081284
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Within the meaning of subsection 146.1(1).