Registered Education Savings Plans (RESPs)

Technical Income Tax Amendments for Registered Education Savings Plans

On December 20, 2002, the Minister of Finance released a package of draft technical amendments to the Income Tax Act (ITA). The technical bill indicated that these amendments were to be applicable after the 90th day after the announcement date (i.e., March 21, 2003). In order to provide for a smoother transition, the Department of Finance intends to propose an amendment to the coming into force date, which would change it from March 21, 2003 to January 1, 2004.

Summary of Changes

Paragraph 146.1(2)(g.3) and subsection 146.1(2.3) have been introduced, both of which apply December 31, 2003. Subparagraph 146.1(2)(g.3)(i) of the Act permits an individual to be designated as a beneficiary under the plan only if the individual's SIN is provided to the promoter before the designation is made, and the individual is resident in Canada when the designation is made. The residency requirement is not applicable when the designation is made in conjunction with a transfer of property from another RESP under which the individual was a beneficiary immediately before the transfer.

Subparagraph 146.1(2)(g.3)(ii) of the Act permits a contribution to the plan in respect of an individual who is a beneficiary only if the individual's SIN is provided to the promoter before the contribution is made and the individual is resident in Canada, or where the contribution is made by way of a transfer from another RESP under which the individual was a beneficiary immediately before the transfer.

As an exception to the requirement to provide the individual's SIN above, subsection 146.1(2.3) does not require an individual's SIN to be provided in respect of a contribution to the plan, if the plan was entered into before 1999. Such contributions continue to be ineligible for the CESG, and the SIN exception is relevant only for existing beneficiaries under such plans.

Under the second new exception, an educational savings plan may permit a non-resident individual who does not have a SIN to be designated as a beneficiary under the plan provided that such designation is made in conjunction with a transfer of property from another RESP under which the individual was a beneficiary immediately before the transfer.

Promoter requirements

As well as amending your RESP specimen plan(s) to comply with the proposed changes for new contracts, you may also need to amend existing contracts so that they may maintain their registered status and eligibility for the Canada Education Savings Grant (CESG).

We will require that the amendments be submitted to this office a year from the date the amendment to the Income Tax Act receives Royal Assent. Please note that the plans must be administered as if they were amended as of January 1, 2004.

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