Registered Education Savings Plans: A Primer
Registered Education Savings Plans or “RESPs” are education savings accounts registered with the Canada Revenue Agency. RESPs are used by individuals to save for their children’s post-secondary education. Once it is registered, it becomes the repository for education savings incentive payments made on behalf of an eligible beneficiary.
RESPs are a creature of statute and are governed by section 146.1 of the Income Tax Act (the “Act”). An RESP must be terminated by the end of the 35th year, following subscription.
A subscriber of an RESP is the person who makes contributions, and in whose name it is registered. A beneficiary, on the other hand, is a person on whose behalf the subscriber opens the RESP.
There are two types of RESPs that one could subscribe to: a family plan and an individual plan.
Under a family RESP, the subscriber can name one or more children as beneficiaries with the requirement that each beneficiary be related to him or her by blood or adoption.
A “blood relationship” is defined under section 250(2) and (6) of the Act, as a relationship between:
- a child and his/or her parents;
- a child and each set of his or her grandparents; and
- a child and each set of his or her great-grandparents.
An aunt/uncle, niece/nephew or cousins, are not considered related by “blood” under the Act.
A relationship by “adoption” includes both legal adoption and “adoption in fact”. When a beneficiary is legally adopted s/he is considered to be connected to the adoptive parents and both sets of grandparents and great-grandparents. Where, however, a legal adoption has not taken place, an “adoption in fact” may exist. For example, the beneficiary is considered to be the adopted child “in fact” of the common-law relationship, if the spouse provided parental care on a continuing basis.
An aunt/uncle, niece/nephew or cousins, are not considered related by adoption under the Act.
Under an individual plan, only one child can be named as a beneficiary; however, there is no requirement that the beneficiary be related to the subscriber under the Act. In fact, the subscriber can even name himself or herself as a beneficiary under such an RESP.
In addition to the statutory provisions of the Act that deal with RESPs, the contract between the subscriber and the promoter (the organization administering the RESP), can provide additional terms and conditions. It is important to review such terms before choosing the promoter that suits your needs, as the contract can provide further restrictions than the statutory framework of the Act.
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