Questions and Answers - RESP, RRSP and RRIF Consultation Session October 25, 2004
Answers provided by the Registered Plans Directorate.
Q.1 What is the position of the Registered Plans Directorate on a dual application form? Can the same application form be used for two different plans (such as for an application form that contains both a RIF and a LIF)?
A.1 In general, an application form should not mislead or confuse the annuitant. The Registered Plans Directorate (RPD) will accept a multi-choice application form for one specimen plan or for two different plans. Combined application forms may include RSPs and RIFs, locked-in, spousal, individual, and group plans, as well as non-registered products. Therefore, the Registered Plans Directorate will accept application forms that include both a RIF and a LIF. But if a multi-choice application is used for two different plans, each specimen plan would be assigned a different specimen plan number.
It has been our administrative practice to accept one application form for two different specimen plans. However, we will not accept a multi-choice application form that includes RESPs and DPSPs. Separate application forms are required for RESPs and DPSPs.
Q.2 Promoters usually send their application for registration to the CESG on the fourth business day of the month following the month in which the contracts were sold. For contracts sold in December, promoters feel they are not getting the full 60 days to apply for registration. If information is missing and they receive an error report from the CESG, they will not have much time to collect the information, resubmit it, and receive the desired registration date.
A.2 A contract is not eligible for registration, and should not be submitted for registration, until all required and correct information is obtained. The promoter is responsible for collecting all required and correct information.
A contract that did not have all required information by December 31 of a particular year cannot be registered for that year.
Q.3 Promoters sometimes receive an error report from the CESG even if all the information they submitted is correct (for example, if the date of birth for the beneficiary in the CESG database does not match the date of birth the promoter submitted). It is the promoters' understanding that these contracts will not be registered. If a promoter has submitted the correct information, is there any other way the contract can be registered?
A.3 No. However, our letter confirming contract registration specifies that a contract submitted with all the correct and required information would be considered registered as of the contract date. Therefore, the registration of a contract submitted within prescribed timeframes with prescribed information would not be compromised because of an error in the CESG database.
Q.4 Is there an up to date list of eligible educational institutions on the CRA Web site that promoters can access to help process RESP withdrawals?
A.4 There is no "all inclusive" list of eligible post-secondary educational institutions. It is possible that an educational institution will qualify for the EAP even though the institution doesn't appear on any existing lists. To confirm whether an educational institution does qualify, call the General Enquiries telephone service at 1-800-959-8281.
Q5. How should the issuer of an RESP do the tax reporting for withdrawals when the value of the RESP assets at the time of the withdrawal is less than the amount contributed to the RESP?
For example, let's say a subscriber contributed $2,000 in 2001 and 2002 (total $4,000), each contribution resulted in a CESG of $400 (total $800), and both the contributions and the CESG were invested in a technology mutual fund. In 2004 the beneficiary (the subscriber's son) attends a Canadian university on a full-time basis and wants to withdraw the entire balance of the RESP and apply it to educational costs. The mutual fund unit value has declined, and the entire investment in the RESP is only $3,900.
a. Since the amount to be withdrawn ($3,900) is less than the contributions made by the subscriber ($4,000), does the entire withdrawal qualify as a repayment of contributions and, as such, not taxable income?
b. If this is not the case, how should the issuer report the $3,900? Is there an educational assistance payment?
A.5 In situations where an investment performs poorly and the RESP suffers a loss, the CESG is only affected when all the contributions and interest are lost. Investment losses are applied first to earnings, then to contributions, and finally to the grant. Section 7(g) of the CES Grant Regulations protects the grant from investment losses until the losses become so great that only the CESG remains in the RESP.
Since there are no earnings in the example provided, the loss incurred by the technology mutual fund would be applied directly to the contributions. Therefore, the value of the RESP would break down as follows: $3,100 of contributions, $800 of grant.
a. No, the entire withdrawal does not qualify as a refund of contributions. Only the subscriber's contributions ($3,100) could be removed from the plan as a refund of contributions. The refund of contributions would be non-taxable to the subscriber. Also, the CESG would not be repayable under these circumstances, as the beneficiary is eligible for an EAP.
b. The $800 grant in the plan could only be withdrawn by the beneficiary through an EAP. The promoter would be responsible for submitting the refund of contributions and EAP transactions electronically to the CESG Program: Record Type 400-13 (EAP) for $800 and Record Type 400-14 (PSE Contribution Withdrawal) for $3,100.
Q.6 Can an EAP be paid to a beneficiary for fees from a previous semester if the beneficiary is no longer enrolled in school?
A.6 No, an EAP can only be paid to a beneficiary who is enrolled in a qualifying educational program at a post-secondary educational institution at the time the payment is made. If an EAP does not satisfy all these requirements, the payment will not be considered an EAP but rather an accumulated income payment (AIP), and it would be taxed accordingly. For more information on AIPs, see information sheet RC4092, Registered Education Savings Plans (RESPs), and Information Circular 93-3r2.
Q.7 Is it possible to transfer assets from an RESP to an RRSP?
A.7 The only assets that could be transferred from an RESP to an RRSP are those that would qualify as an AIP (income earned on contributions and on CESGs). The requirements for the payment of an AIP specified above would have to be met before such transfer would be permitted. The amount permitted to be transferred would be whichever is less: the amount of accumulated contribution room in the RRSP or $50,000. For more information on this type of transaction, see information sheet RC4092, Registered Education Savings Plans (RESPs).
Q.8 What is the deadline for filing ESP applications for registration?
A.8 The electronic registration process for ESPs took effect in 2001. To ease the transition in filing systems, the temporary 13 month rule was created.
As mentioned at the 2003 consultation session, we are going back to the 60-day deadline for registering after the end of the year. This will apply to ESPs sold after 2003. We will only accept contracts for registration that have been duly submitted to the CESG system no later than 60 days after the end of the calendar year the plan was entered into.
Promoters are responsible for ensuring that all the required information is present and accurate before submitting a request for registration. Where contracts are missing information and the promoter therefore misses the 60-day period, the contracts may be registered the following year.
Q.9 Can the locked-in designation be removed from an RRSP or a RRIF?
A.9 Questions about the locked-in requirements for an RRSP or a RRIF should be discussed with the applicable provincial or federal pension standards regulators. The Income Tax Act does not place any locking-in restrictions on RRSPs or RRIFs, so CRA approval is not required to remove the locked-in designation.
Q.10 Has the RPD considered setting up an email enquiry system where RRSP and RRIF issuers/carriers could submit questions and have them answered in a timely manner (and where all questions and answers could be viewed by all issuers/carriers)? This would help inform issuers and carriers about areas of concern and how to avoid or resolve them. It might also reduce or eliminate repeated questions from issuers on the same subjects and would encourage more uniform practice among issuers and carriers.
A.10 As part of our re-engineering process, the issue of establishing a greater Web presence and an email enquiry system was raised during consultations with industry stakeholders. These issues are being considered, and the policies and processes to develop such a program may be reviewed as part of the re-engineering program or as a program implemented by the CRA. The RPD is not currently considering a monitored on-line forum for the industry (or individuals) to discuss issues related to filing requirements, technical items, or topics such as the effects of legislative changes.
In the meantime, we welcome telephone enquiries from 8:00 a.m. to 5:00 p.m. (Eastern Time) or written enquiries via mail or fax. We published our standards on the timeliness of our responses in Newsletter No. 95-2R1 "Registered Plans Directorate Services". At this time we do not have an established policy to address email enquiries. One of the challenges we face is protecting the security of taxpayer information in light of the confidentiality provisions of the Income Tax Act.
Q.11 In a technical interpretation (2004-007140117) dated May 11, 2004, the CRA stated that the issuer could not convert the RRSP into a valid RRIF after the death of the plan annuitant because the annuitant could not enter into the arrangement.
a. If the RRSP consists of an annuity contract [see paragraph (a) of the definition of "registered retirement savings plan" in subsection 146 (1) of the Income Tax Act] between the life insurance company and the annuitant, and the annuity contract calls for the RRSP to automatically become a RRIF at the end of the year in which the annuitant becomes age 69, would the CRA register the annuity as an RRSP?
b. If the RRSP annuity in a. permits the annuitant to make another choice before the end of the year in which he or she reaches age 69, such as taking an annuity that makes periodic payments, would the CRA register the annuity as an RRSP?
c. For the plan in a., would the CRA agree that the annuity becomes a RRIF at the end of the year in which the annuitant reaches age 69 without any further application by the annuitant?
d. If the annuitant in plan a. dies before age 69 but the issuer of the RRSP is not aware of it, would the CRA agree that the RRSP becomes a RRIF at the end of the year in which the annuitant would have been age 69?
A.11 Under review, answer will be posted at a later date.
Answers provided by Business Returns and Payments Processing Directorate
Q.12 Have you changed your position on encrypting files? I was advised that you were looking into a change or into an alternative to encryption.
A.12 Given the change in the environment since the business requirements were developed, and the perceived need for encryption, we are continuing to look into this question. We are not able to process encrypted files at this time.
Q.13 Are you using the Mod 10 test or any secondary checks on the XML filing?
A.13 We require a valid filer identification number (FIN) to process a return. We cannot process the return without it. We do an internal Mod 10 check on all fields that require a contributor social insurance number (SIN). We do not reject a submission if the SIN is invalid.
Q.14 This is the first year we will be sending an XML submission. Other financial institutions have been doing this for the past two years. What kinds of problems are causing the CRA to return submissions?
A.14 Before sending your XML submission, you should self-test your submissions by using the XML schema that you download from our Web site along with your validating parser. You must test your submission before you send it to the CRA. The CRA will reject submissions that contain file format errors, and all of the returns within the submission will be considered not filed. Please verify that the validating feature in your parser is turned on before checking your file.
You can find general instructions for filing XML submissions on our Web site.
Q.16 Where are the procedures for amendment filing?
A.16 You can find procedures for filing electronic amendments on our Web site.
Q.17 What are your timeframes for processing these amendments and refunding to financial institutions?
A.17 We would like to have the information as soon as it is available. Since there are no deductions remitted to the CRA for RRSP contribution receipts, there are no refunds.
a. What XML fields will be reported on and what messages will be provided in the report card?
b. What is the process concerning the report card items (requirements for error messages, warnings, rejects, resubmissions, timeframes, penalties, etc.)?
c. What are the CRA's expectations in relation to the report card items? Would the XML processing report card apply to both XML CD for magnetic media reporting and contribution receipts?
A. 18 a./b./c.
The report that is currently under development will provide transmitters with an overview of the quality of their submissions. This would be based on information provided for 2005 and submitted in 2006.
Q.19 Where are XML contribution receipt reporting updates and changes?
A.19 You can find information on RRSP Contribution Receipt Filing on our web site.
Q.20 Where can we get updates on changes for filing amendments and cancellations?
A.20 You can find procedures for filing electronic amendments on our Web site.
Q.21 Can we still submit amended contribution receipts on paper? Can an exception be made to allow for paper filing of contribution receipts in certain situations?
A. 21 We are only able to process RRSP contribution receipts (original, amended, or cancelled) electronically in XML format.
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