Special Rules on RESP Transfers
When opening an heritage education funds RESP account, there are generally few rules, making it generally easy to avail one. However, there are special rules that apply when you want to change the beneficiary. There are also specific rules when you want to transfer an RESP property to another RESP or to an RDSP.
General Rules when Changing the Beneficiary
When a person becomes a new beneficiary in place of another, the contributions for the former are treated as if they had been for the new beneficiary since they were originally made. If this new beneficiary has an existing RESP, there may be an excess contribution.
Exception to the general rule:
There are special situations wherein the general rule doesn’t apply. These situations are:
• The new beneficiary is under 21 years old and his or her parents are the also the parents of the former beneficiary.
• Both of the new and former beneficiaries are connected by blood relationship of adoption to the original subscriber under the heritage RESP and both of them are under 21 years old.
The exception guarantees that the contribution history of the former beneficiary is not added on top of the contribution of history of the new beneficiary when determining whether the new beneficiary’s lifetime contribution limit has already been exceeded.
Rules when Transferring RESP Property to another RESP
In most cases, the RESP account owner suffers no tax implication when doing transfers from one RESP to another. Such cases include:
• A situation where the transferring RESP and the receiving RESP have the same beneficiary.
• A situation where a beneficiary under the transferring RESP has a brother or sister (under 21 years old before the transfer is made, unless the receiving RESP is a family account) who is the beneficiary under the receiving RESP.
It’s important to remember that RESP providers treat the subscriber from the transferring RESP as the subscriber under the receiving RESP. Therefore, he or she is liable for any form or tax on the excess contribution, which in some cases happen during transfers as mentioned above.
When the transfer is between plans held by siblings and the receiving RESP is held by a sibling older than 21 years, property transfers between individual RESPs may result to tax penalties. The Canada Education Savings Grant and Canada Learning Bonds will have to be repaid as well.
Rules when Rolling over RESP Property to an RDSP
Generally, a person with an heritage education funds RESP that has accumulated income payments and an RDSP holder may jointly choose a rollover an accumulated income payment to the RDSP if the beneficiary of the two plans is the same person.
To qualify for an education savings rollover, the following conditions must be met:
• The beneficiary must meet the required age and residency in terms of RDSP contributions
• There beneficiary has a severe or prolonged mental impairment that prevents him or her from pursuing post-secondary education
• The RESP has been open for at least 10 years and each RESP beneficiary is at least 21 years old and is not eligible for educational assistance payments
• The RESP has been open for 35 years.
