W.C. Harding (613) 957-3499
December 7, 1988
Dear Sirs:
Re: Registered Education Savings Plans (RESPs)
This is in reply to your letter of November 17, 1988 wherein you requested our opinion in respect of two questions you have raised related to RESPs.
In our opinion the transfer of a property to an RESP would trigger a disposition of that property at fair market value. Subparagraph 54(c)(iii) of the Act operates to include within the meaning of "disposition", as that term is used in the Act, any transfer of property to a trust except as provided under subparagraph 54(c)(v) of the Act which excludes from the definition certain transfers where there is a change in the legal ownership of a property but no change in its beneficial ownership.
When a subscriber transfers a property to an RESP, he is transferring legal title of the property to the Trust and its beneficial ownership to the RESP "Beneficiary" as defined under paragraph 146.1(1)(a) of the Act. The subscriber, if he is not also the plan beneficiary, only retains as an interest in the trust, a right to a "refund of contributions" as defined under paragraph 146.1(1)(e) of the Act. He no longer has the same, unchanged, beneficial interest in the property.
When the subscriber is also the plan beneficiary his interest, as beneficiary, will be subject to his qualifying for "educational assistance payments" under the terms of the Plan. In our view, because of this, his beneficial interest in the trust property will be sufficiently changed that the excepting provisions of subparagraph 54(c)(v) will not be applicable and the transfer will be a disposition for all purposes of the Act.
The subscriber to an RESP has a right, as noted above, to a "refund of contributions", as defined under 146.1(1)(e) of the Act, which is a right to an amount not exceeding his contributions to the plan. This right is a capital property and there would be a deemed disposition on death in respect of it under the provisions of Subsection 70(5) of the Act. The value of the right, however, can never exceed the amount of the contributor's previously unrefunded contributions to the plan and, in consequence, no capital gains can generally arise. Capital losses might arise if the ability of the trust to fully repay the contributions at the time of death was impaired. In our opinion, however, such a loss would be nil in accordance with subparagraph 40(2)(g)(ii) of the Act.
We trust that these comments are satisfactory to your needs.
Yours truly,
Wayne Douglas
for Director Financial Industries Division Rulings Directorate