| 5-923187 | |
| 24(1) | D.S. Delorey |
| (613) 957-8953 |
Attention: 19(1)
November 13, 1992
Dear Sirs:
This is in reply to your letter of October 19, 1992 concerning the tax implications arising out of certain transactions involving an individual who has subscribed to a registered education savings plan ("RESP").
You refer in your letter to a situation where an individual subscribed to an RESP 15 years ago when his child was 1 year old. You are concerned with the tax implications and the procedures to follow where the individual transfers/sells the program to a neighbour for consideration. You cite as an example one where the RESP capital would remain the property of the individual but the income element of the RESP amounting to $30,000 would be sold to his neighbour for a fair market value of $20,000. You mention that this is possible because your plan allows the transfer of scholarships from one individual to another, up to the age of 17.
Our Comments
Written confirmation of the tax implications inherent in a particular set of facts is given by this Directorate only where the facts relate to a proposed transaction that is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the facts relate to a completed transaction, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.
Since the example in your letter indicates that the individual would continue to be the subscriber and therefore that no new plan would be involved, we presume your reference to "transferring scholarships from one individual to another" refers simply to changing the beneficiary under the RESP. In this regard, there is nothing in the Act precluding a subscriber to an RESP from changing the beneficiary under the RESP and, where the RESP permits only one beneficiary, the beneficiary need not be connected to the subscriber by blood relationship or adoption. As indicated in paragraph 146.1(2)(j) of the Income Tax Act (the ("Act"), this connection is required only where the RESP permits more than one beneficiary at the same time.
The right under an RESP to change beneficiaries is a property of the subscriber. Where a subscriber agrees for a price to name another person's child as the RESP beneficiary, we would expect the other person to insist that the subscriber give up his right to make any further beneficiary changes. Consequently, the subscriber would be disposing of that right and 75% of the resulting capital gain would be required to be included in computing his income.
Where an individual is made a beneficiary under an RESP, paragraph 146.1(2)(l) provides that the promoter shall, within 90 days, notify the individual (or the individual's parent where the individual is under 19 and ordinarily resides with the parent) in writing of the existence of the plan and the name and address of the subscriber in respect of the plan.
For the purposes of the "excess amount" computation in subsection 204.9(1) of the Act, paragraph 204.9(4)(a) of the Act provides that all payments made into the RESP before a beneficiary is changed shall be deemed to have been made in respect of the new beneficiary.
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate