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RESP Transfers

There may be a number of scenarios where you need to transfer an Registered Education Savings Plans (RESPs) account including the following:

  • You are changing financial institutions.
  • You want to simplify your life by consolidating two or three RESP accounts into a single account.
  • You may want to consolidate accounts from different subscribers.
  • One of your children decided not to pursue a post-secondary education and you want to merge RESP accounts.

 

 

In general, you are permitted to make partial or full transfers of an RESP account’s assets and there are few basic types of transfers: simple account transfers, account consolidation transfers and consolidating RESP accounts that have different subscribers.

Simple account transfers

Simply transferring a single RESP account from one financial institution to another is known as a simple RESP transfer. There are no income tax implications for this type of simple transfer. Simply visit the receiving financial institution to complete the documentation necessary to open the RESP account and initiate the transfer. The new receiving RESP account will assume all of the contribution history, grant history, and Plan Effective Date (also known as the plan’s start date) of the transferring RESP account.

Account consolidation transfers

Consolidation transfers are RESP transfers that result in two or more RESP accounts being merged into a single account. In this type of transfer you must ensure that the transfers do not result in over-contributions and other unwanted income tax consequences.

For consolidating RESP transfers where;

  • The transferring and receiving RESP accounts have the same beneficiaries, or
  • The beneficiary under the transferring RESP account has a brother or sister, under the age of 21, who is a beneficiary of the receiving RESP account, there are no income tax implications. 

 It is important that a consolidating transfer avoid the unintentional creation of excess contributions, which can occur because the RESP contribution history for each beneficiary under the transferring RESP is assumed by each beneficiary under the receiving RESP. In addition, the CRA treats each contribution in the transferring RESP account as if it had been made into the receiving RESP account.

In addition, each subscriber under the transferring RESP account is treated as if they are a subscriber under the receiving RESP account. This results in the subscribers under both of the plans (the transferring and the receiving RESP account) becoming responsible for any penalty tax that results from excess contributions.

The main concern when making a consolidating transfer is that you may alter the receiving or resulting RESP account’s Effective or Start Date. The RESP’s Effective Date is very important because this is the date used to determine when the subscriber’s contributions and transfers into an RESP account must cease, when the Accumulated Income payments (AIP) must begin, and when the RESP account must be terminated.

When you make a consolidating RESP transfer from one RESP account into another RESP account, the resulting Effective Date for the receiving RESP account will be the earlier of

  • The Effective Date of the transferring plan, and
  • The Effective Date of the receiving plan

Example: If RESP Plan A with an Effective Date of January 1, 2001, was transferred into RESP Plan B with an Effective Date of January 1, 2011, then the Effective Date of the receiving Plan B, becomes January 1, 2001. As a result the life span for Plan B has been reduced by 10 years. This may create a problem if the beneficiaries of Plan B are very young because, potentially, Plan B could be required to terminate prematurely.

In addition, consolidating transfers that include monies received under the Canada Education Savings Grant (CESG) program can potentially trigger an excess contribution penalty tax, if one of the following conditions is not satisfied:

  • There is at least one common beneficiary for the transferring and receiving RESP accounts; or if
  • A beneficiary to the transferring RESP account is a brother or sister of a beneficiary, that is 21 years of age or younger, of the receiving RESP account.

If either of these conditions cannot be satisfied, then the resulting penalty tax that could result from the transfer, full or partial, may be too onerous making the consolidating transfer impractical.

Consolidating RESP accounts that have different subscribers

For RESP accounts that have different subscribers consolidating into a single RESP account can be done, provided one of the following conditions satisfied:

  • There is at least one common beneficiary for the transferring and receiving RESP accounts; or if
  • A beneficiary to the transferring RESP account is a brother or sister of a beneficiary, that is 21 years of age or younger, of the receiving RESP account.

In addition, the RESP guidelines state that if the beneficiary under the receiving RESP account was a beneficiary of the transferring RESP account, the contribution history of the receiving RESP account is used in determining excess contribution amounts. This rule is the same for both Family and Individual RESP accounts.

Family RESP accounts can be set up to receive transfers from an Individual RESP account and vice versa.

In either case, consolidating a Family RESP into an Individual RESP or an Individual RESP to a Family RESP, the rules governing the beneficiaries of the receiving RESP will be those governing a Family RESP.

Note: For all RESP transfers, you should consult with your RESP promoter/provider before you initiate a transfer. Your RESP promoter/provider can help ensure that your intended transfer is within the rules governing RESP transfers and whether or not the transfer should proceed.

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