November 24, 1988 Financial Industries Division R. Nanner 957-3494
SUBJECT: Registered Education Savings Plans OBJET:
FILE DOSSIER 7-3409
This is in response to your memorandum of October 25, 1988 concerning certain questions posed by XXXX in their letter of July 29, 1988. We would comment on the issues in the same order as they are raised.
1. We concur with your comments. Furthermore, our reply to both parts of the question would be in the affirmative. The accrued interest would be included in the transferor's income in the year of transfer by virtue of subsection 20(14) of the Act.
2. We agree with your comments. It is also our view that you should be able to respond favourably to the question posed i.e. provided an RESP sells its investments to the subscriber at fair market value and the subscriber pays to the RESP the difference between that value and the refund of contributions owed to him by the RESP, the subscriber should be able to receive the investments in kind.
3. We concur. Since the subscriber is not in a position to earn income on funds contributed to the RESP trust, the subscriber cannot deduct any fees paid on account of the activities of the RESP trust. This situation is similar to the one described in paragraph 7 of IT-238R2 .
4. While we agree with your comments that there are no restrictions on the type of investments that an RESP trust may invest in, we cannot give assurance to the taxpayer to the effect that the Department of Finance will not propose any such legislation in the future. We agree that by virtue of paragraph 205(1)(g), section 206.1 would apply on the acquisition of unlisted options by an RESP.
5. We concur with your views. In our opinion, there is no requirement in the law that the heirs, executors, administrators or other legal representatives of the subscriber be restricted to persons who are individuals.
6. We agree with your comments on 6(a). With respect to 6(b), it is our view that the right to refund. of contributions is a capital property, a disposition of which will probably not result in a capital gain as the maximum amount that a person may get back as a refund of contributions cannot be greater than the contributions.
On the other hand, if a capital loss resulted on such a disposition, the loss would not be deductible to the subscriber by virtue of subparagraph 40(2)(g)(ii) of the Act.
We hope these comments are of assistance to you.
Wayne Douglas
for Director Financial Industries Division Rulings Directorate