Recently, The Canada Revenue Agency (“CRA”) was whether the six month extension for making educational assistance payments (“EAPs”) out of a registered education savings plan (“RESP”) under the appropriate subsection of the Income Tax Act (the “Act”) can apply when the beneficiary under the plan is deceased.

The Act stipulates that one of the conditions for the registration of an RESP is that EAPs can only be paid to or for an individual who is at the time of payment enrolled in either a qualifying educational program or a specified educational program. The Act contains a relieving provision to allow for the payment of an EAP to or for an individual within six months of the individual ceasing to be enrolled in such a program so long as the conditions as set in the Act were otherwise met immediately before such cessation.

The CRA was asked as to whether the six-month extension for making EAPs provided under the Act allows for the payment of an EAP “to or for an individual” once the individual in question is deceased. In the specific scenario provided to the CRA, the beneficiary met the requirements of the relevant subsections of the Act immediately before enrolment in the qualified program ceased.

This is of particular relevance because where a payment made out of an RESP is not an EAP and also not one of the payments described in the definition of “trust” contained within the relevant subsections of the Act, the payment by definition will be an accumulated income payment (“AIP”). In general AIPs are included in the recipient’s income in the year of receipt and are subject to an additional 20% tax (subject to certain available rollovers). AIPs were introduced as a permissive measure to allow for the withdrawal of income from an RESP when the purpose of the RESP did not come to fruition (i.e., no beneficiary pursued qualifying post-secondary education). The additional 20% tax is levied to account for the fact that the savings were permitted to accumulate tax free for the years in which the RESP was in place.

Regrettably, the answer was no. It is CRA’s position that the phrase “to or for an individual” in the relevant subsection of the Act must apply in respect of a living individual and an EAP cannot be paid in respect of a beneficiary once the beneficiary in question is deceased.

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