Definitions for Registered Education Savings Plans
- Additional tax
You calculate this tax separately, using Form T1172, Additional Tax on Accumulated Income Payments from RESPs. Include a completed copy of Form T1172 with your income tax and benefit return for the year you receive the AIP. You have to pay the additional tax by the balance due date for your regular tax, usually April 30 of the year that follows the year in which you received the AIP.
An advantage is any benefit, loan or debt that depends on the existence of the RESP, other than:
- RESP distributions;
- administrative or investment services in connection with the RESP ;
- loans on arm’s length terms;
- payments or allocations (such as bonus interest) to the RESP by the promoter; or
- a benefit provided under an incentive program that is offered to a broad class of persons in a normal commercial or investment context and not established mainly for tax purposes.
An advantage includes any benefit that is an increase in the total fair market value (FMV) of the property held in connection with the RESP that can reasonably be considered attributable, directly or indirectly, to one of the following:
- a transaction or event (or a series of transactions or events) that would not have occurred in a normal commercial or investment context where parties deal with each other at arm’s length and act prudently, knowledgeably, and willingly with each other, and one of the main purposes of which is to enable the subscriber (or another person or partnership) to benefit from the tax-exempt status of the RESP.
- a payment received in substitution for either:
- a payment for services provided by the subscriber (or another person not at arm’s length with the subscriber); or
- a payment of a return on investment or proceeds of dispositions for property held outside of the RESP by the subscriber or a person not dealing at arm’s length with the subscriber.
- a swap transaction; or
- specified non-qualified investment income that has not been paid from the RESP within 90 days of the subscriber receiving a notice from CRA requiring them to remove the amount from the RESP.
An advantage also includes a registered plan strip or any benefit that is income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to one of the following:
- a prohibited investment in respect of the RESP or any other RESP of the subscriber.
- an amount received by the subscriber of the RESP (or by a person not dealing at arm’s length with the subscriber) if it is reasonable to consider that the amount was paid in relation to, or would not have been paid but for, property held in connection with the RESP, and the amount was paid in substitution for either a payment:
- for services provided by the subscriber (or another person not dealing at arm’s length with the subscriber); or
- of a return on investment or proceeds of disposition.
If the advantage is extended by the promoter of an RESP, or a person with whom the holder is not dealing at arm’s length, the holder, and not the subscriber of the RESP, is liable to pay the tax resulting from the advantage.
Refers to a relationship or a transaction between persons who act in their separate interests. An arm’s length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.
This applies to a person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:
- has been living with you in a conjugal relationship, and this current relationship has lasted at least 12 continuous months;
In this definition, 12 continuous months includes any period you were separated for less than 90 days because of a breakdown in the relationship.
- is the parent of your child by birth or adoption; or
- has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.
Fair market value (FMV)
Usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other. For more information on the valuation of securities of closely-held corporations, see Information Circular IC89-3, Policy Statement on Business Equity Valuations.
Family plans are the only RESP that allow subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each living subscriber or have been so tied to a deceased original subscriber.
A beneficiary under a family plan entered into after 1998, must be less than 21 years of age at the time he or she is named as a beneficiary. When one family plan is transferred to another, a beneficiary who is 21 years of age or older can still be named a beneficiary to the new RESP.
A non-arm's length generally refers to a relationship or transaction between persons who are related to each other.
However, a non-arm’s length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances. For more information, see the definition of "Arm’s length".
A non-qualified investment is property that is not a qualified investment for the RESP trust. For more information on non-qualified investments see Folio S3-F10-C1, Qualified Investments - RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
Post-secondary educational institution
A post-secondary educational institute includes all the following:
- a university, college, or other designated educational institution in Canada
- an educational institution in Canada certified by Employment and Social Development Canada (ESDC) as offering non-credit courses that develop or improve skills in an occupation
- a university, college, or other educational institution outside Canada that has courses at the post-secondary school level, as long as the student is enrolled in a course that lasts at least 13 consecutive weeks
Public primary caregiver
A public primary caregiver is one who receives a special allowance under the Children's Special Allowance Act and may be the department, agency or institution that cares for the beneficiary, or the public trustee or public curator of the province in which the beneficiary resides.
A prohibited investments is property to which the RESP subscriber is closely connected. It includes:
- a debt of the subscriber;
- debt or share of, or an interest in, a corporation, trust, or partnership in which the subscriber has a significant interest (generally a 10% or greater interest, taking into account non-arm's length holdings); and
- a debt or share of, or an interest in, a corporation, trust, or partnership with which the subscriber, does not deal at arm's lengh.
A prohibited investment does not include a mortgage loan that is insured by the Canada Mortgage and Housing Corporation or by an approved private insurer. It also does not include certain investment funds and certain widely held investments which reflect a low risk of self-dealing. For more information on prohibited investments see Folio S3-F10-C2, Prohibited Investments - RRSPs, RRIFs, and TFSAs.
The promoter usually pays the contributions, and the income earned on those contributions, to the beneficiaries. The income earned is paid as educational assistance payments.
Qualifying educational program
A qualifying educational program is an educational program at post-secondary school level, that lasts at least three consecutive weeks, and that requires a student to spend no less than 10 hours per week on courses or work in the program.
Registered education savings plan (RESP)
A registered contract between an individual (the subscriber) and a person or organization (the promoter). The subscriber generally makes contributions to the RESP, which earns income, paid in the form of educational assistance payments to one or more identified beneficiaries.
Registered plan Strip – the amount of a reduction in the FMV of property held in connection with the RESP, if the value is reduced as part of a transaction, or event, or a series of transactions, or events for which one of the main purposes is to enable the subscriber, or a person who does not deal at arm’s length with the subscriber, to obtain a benefit in respect of property held in connection with the RESP, or to obtain a benefit as a result of the reduction but does not include an amount that is:
- included in the income of the subscriber or an RESP beneficiary ;
- a refund of payments under the RESP; or
- a permitted transfer of funds from one RESP to another.
- an accumulated income payment rollover made in excess to an RDSP.
This is the tax you calculate when you complete your income tax and benefit return. It is based on your total taxable income.
Related persons are not considered to deal with each other at arm’s length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.
RRSP deduction limit
The maximum amount you can deduct from contributions you made to your RRSPs or to your spouse's RRSP or common-law partner's RRSP for a year (excluding transfers to your RRSPs of certain types of qualifying income). The calculation is based, in part, on your earned income in the previous year. Pension adjustments (PAs), past service pension adjustments (PSPAs), pension adjustment reversals (PARs), and your unused RRSP deduction room at the end of the previous year are also used to calculate the limit.
Specified educational program
A specified educational program is a program at post-secondary school level that lasts at least three consecutive weeks, and that requires a student to spend not less than 12 hours per-month on courses in the program.
Specified non-qualified investment income – income (excluding the dividend gross-up), or a capital gain that is reasonably attributable, directly or indirectly, to an amount that is taxable for any RESP of the subscriber (for example, subsequent generation income earned on non-qualified investment income)
A specified plan is essentially a single beneficiary RESP (non-family plan) under which the beneficiary is entitled to the disability tax credit for the beneficiary's tax year that includes the 31st anniversary of the plan. Furthermore, a specified plan cannot permit another individual to be designated as a beneficiary under the RESP at any time after the end of the year that includes the 35th anniversary of the plan.
In addition, no contributions (except transfers from another RESP) may be made to the plan at any time after the end of the year that includes the 35th anniversary of the plan, and the plan must be completed by the end of the year that includes the 40th anniversary of the plan.
Spousal or common-law partner RRSP
A spousal or common-law partner RRSP is a plan that was established to pay yourself income at maturity, but that your spouse or common-law partner contributes to.
A person to whom you are legally married.
This is any transfer of property between the RESP and the subscriber (or a person not at arm’s length with the subscriber) occurring after March 22, 2017, subject to certain exceptions.The following are not considered to be “swap transactions”:
- contributions, distributions, and transfers between the RESP and another RESP of the same subscriber; or
- transactions related to insured mortgage loans.
An exception is also provided to allow individuals to “swap-out” a non-qualified or prohibited investment provided that the conditions for a refund of the 50% tax on such investments are met. To qualify under this exception, the individual must be entitled to a refund of the tax on disposition of the investment (generally inadvertent cases that are promptly resolved).
Swap transactions that are undertaken to remove:
- an investment from an RESP that would otherwise result in tax under Part XI.01 if left in the plan are permitted to continue to occur until the end of 2021.
- a transitional prohibited property from an RESP that would otherwise result in tax under Part XI.01 if left in the plan are permitted to continue to occur until the end of 2027.
- in any other case, after June 2017.
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