Transferring RESP property to another RESP

Most transfers from one RESP to another RESP will have no tax implications. This is the case when the transferring RESP and the receiving RESP have the same beneficiary. There are also no tax implications when a beneficiary under the transferring RESP has a brother or sister (under 21 years of age before the transfer is made unless the receiving plan is a family plan) who is a beneficiary under the receiving RESP.

In any other case, transfers can result in an excess contribution. This is because the RESP contribution history for each beneficiary under the transferring RESP is assumed by each beneficiary under the receiving RESP. We treat each contribution as if it had been made into the receiving RESP. In addition, we treat each subscriber under the transferring RESP as a subscriber under the receiving RESP. This means that he or she is liable for any tax on excess contribution.

Currently, a transfer of assets between individual RESPs may result in tax penalties and the repayment of the Canada Education Savings Grants and Canada Learning Bonds when the transfer occurs between plans held by siblings and the plan receiving the transfer amount is held by a sibling whose age exceeds 21.

Transfers of assets that occur after 2010 will allow these transfers to be made without penalties and repayments if the plan receiving the transfer amount allows more than one beneficiary at a time or if the beneficiary of a plan receiving the transfer of assets had not reached 21 years of age when the plan was opened.

Rolling over RESP property on a tax-deferred basis to an RDSP

Rollovers can be made after 2013 from an RESP to an RDSP. In general terms, a subscriber of an RESP that allows accumulated income payments and a holder of an RDSP may jointly elect in prescribed form to rollover an accumulated income payment under the RESP to the RDSP if, at the time of the election, the RESP beneficiary is also the beneficiary under the RDSP.

To qualify for an education savings rollover, the beneficiary must meet the existing age and residency requirements in relation to RDSP contributions. As well, one of the following conditions must be met:

  • the beneficiary is, or will be, unable to pursue post-secondary education because he or she has a severe and prolonged mental impairment.
  • the RESP has been in existence for more than 35 years.
  • the RESP has been in existence for at least 10 years and each beneficiary under the RESP has attained 21 years of age and is not eligible to receive educational assistance payments.

The education savings rollover to an RDSP will not be subject to regular income tax or the additional 20% tax. The RESP promoter must send Form RC435, Rollover from a Registered Education Savings Plan to a Registered Disability Savings Plan to the RDSP issuer and keep a copy of it on file. This will satisfy the RESP promoter’s requirement to file the election with the Canada Revenue Agency.

When an education savings rollover occurs, contributions in the RESP will be returned to the RESP subscriber on a
tax-free basis. As well, CESGs and CLBs in the RESP will be required to be repaid to ESDC and the RESP terminated by the end of February of the year after the year during which the rollover is made.

The education savings rollover to an RDSP:

  • will be considered a private contribution for the purpose of determining whether the RDSP is a primarily government assisted plan (PGAP), but will not attract Canada Disability Savings Grants (CDSGs);
  • will be included in the taxable portion of RDSP withdrawals made to the beneficiary; and
  • may not exceed, and will reduce the RDSP lifetime limit of $200,000.

An education savings rollover cannot be made if the beneficiary:

  • is not eligible for the disability tax credit (DTC);
  • has died;
  • is over 59 years of age in the year of the contribution; or
  • is not a resident of Canada.

An education savings rollover cannot be made if the RDSP holder has not provided their consent to the rollover.

 
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