Regulations Amending the Canada Education Savings Regulations: SOR/2018-275

Canada Gazette, Part II, Volume 152, Number 26

Registration
SOR/2018-275 December 7, 2018

CANADA EDUCATION SAVINGS ACT

P.C. 2018-1540 December 6, 2018

Her Excellency the Governor General in Council, on the recommendation of the Minister of Labour, pursuant to section 13 footnote a of the Canada Education Savings Act footnote b, makes the annexed Regulations Amending the Canada Education Savings Regulations.

Regulations Amending the Canada Education Savings Regulations

Amendments

1 The title of the French version of the Canada Education Savings Regulations footnote 1 is replaced by the following:

Règlement canadien sur l’épargne-études

2 (1) The portion of subsection 4(1) of the Regulations before paragraph (a) is replaced by the following:

4 (1) The Minister may pay a CES grant in respect of a contribution that has been made to an RESP and has not been withdrawn if

(2) Paragraph 4(1)(g) of the Regulations is replaced by the following:

(g) the trustee complies with the terms and conditions of these Regulations and the trustee agreement that applies to the RESP.

3 Paragraph 6(1)(f) of the Regulations is replaced by the following:

(f) the trustee complies with the terms and conditions of these Regulations and the trustee agreement that applies to the RESP.

4 Subsections 10(1) and (2) of the Regulations are replaced by the following:

10 (1) Subject to subsection (3), the portion of an EAP made to a beneficiary under an RESP that is attributable to a CLB is the amount determined by the formula

A × B/C

where:

A is the amount of the EAP,

B is the balance in the beneficiary’s CLB account immediately before the payment of the EAP, and

C is the total amount available to the beneficiary for an EAP.

(2) Subject to subsections (3) and (4), the portion of an EAP made to a beneficiary under an RESP that is attributable to CES grants is the lesser of

(a) the amount determined by the formula

A × D/C

where

(2.1) The portion of an EAP made to a beneficiary under an RESP that is attributable to accumulated income is the amount determined by the formula

A × E/C

where

A is the amount of the EAP,

E is the amount of the accumulated income in the RESP immediately before the payment of the EAP, and

C is the total amount available to the beneficiary for an EAP.

(2.2) For the purposes of subsections (1) to (2.1), the total amount available to the beneficiary for the EAP is the sum of

5 Paragraph 11(4)(b) of the Regulations is replaced by the following:

(b) the amount determined by the formula

(C × Y)/(Y + G)

where

6 Subsection 16(2) of the Regulations is replaced by the following:

(2) If less than all of the property, other than the property in a CLB account or any amount paid under a designated provincial program, held in connection with an RESP is transferred to another RESP, the assisted contributions, unassisted contributions, CES grants and accumulated income are considered to be transferred in the same proportion of their total balances as the value of the property transferred is to the total value of the property, other than the value of the property in a CLB account or any amount paid under a designated provincial program, in the RESP at the time of the transfer.

7 Subsection 17(3) of the French version of the Regulations is replaced by the following:

(3) La somme au titre d’un bon d’études qui est transférée d’un REEE à un autre est réputée avoir été versée au fiduciaire du REEE cessionnaire.

Coming into Force

8 (1) Subject to subsection (2), these Regulations come into force on the day on which they are registered.

(2) Subsection 2(1) and sections 4 to 6 come into force on September 1, 2019.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Regulations Amending the Canada Education Savings Regulations (the Amendments) address four different issues in the Canada Education Savings Regulations (the Regulations) relating to the administration of education savings incentives in registered education savings plans (RESP). The four issues are: proportional repayment after an investment loss; proportional partial transfers; educational assistance payment (EAP) calculations; and repayment of a pending grant. The Amendments also include technical changes to address concerns raised by the Standing Joint Committee for the Scrutiny of Regulations (SJCSR) and to ensure coherence between the English and French versions of the Regulations.

Background

The Government of Canada encourages the use of RESPs to save for a child’s post-secondary education, which includes full- or part-time studies at a trade school, CEGEP, college, or university, or in an apprenticeship program.

Employment and Social Development Canada (ESDC) administers two education savings incentives linked to RESPs:

1. The Canada Education Savings Grant (CESG) consists of an amount of 20% on the first $2,500 in annual personal contributions to an RESP for eligible children regardless of family income, as well as an additional amount of CESG, which is

* Net family income levels are subject to annual indexing for inflation.

To be eligible for the CESG, a child must:

The CESG is available until the calendar year in which the beneficiary turns 17 years of age. The maximum lifetime amount, including the additional amount of CESG, is $7,200.

2. The Canada Learning Bond (CLB), which is available for eligible children from low-income families, consists of an initial amount of $500 plus $100 for each year of eligibility, up to age 15, for a maximum of $2,000. Personal contributions are not required to receive the CLB.

To be eligible for the CLB, a child must

ESDC also administers provincial education savings incentives on behalf of the Government of Saskatchewanfootnote 2 and the Government of British Columbia footnote 3 on a cost recovery basis. The Government of Quebec introduced the Québec education savings incentive (QESI), also paid into RESPs, in 2007. This incentive is not administered by ESDC.

Proportional repayment after an investment loss

RESPs can contain contributions made by an individual (the subscriber), education savings incentives paid by federal and provincial governments, and any investment earnings. An investment loss in an RESP occurs when the fair market value of the RESP is less than the total of the contributions and the education savings incentives. When the repayment of provincial and federal education savings incentives is required, such as when an RESP is terminated or the registration of an RESP is revoked, investment losses are applied to the individual’s contributions first, and then to federal and provincial education savings incentives.

In cases where losses are applied to federal and provincial education savings incentives, the Regulations require the CLB and the CESG to be repaid in full before any provincial incentives are repaid. This can result in an uneven distribution of repayments to the Government of Canada at the expense of provincial governments. To accommodate the provincial education savings incentives, ESDC introduced an operational policy that when a repayment is required and there are insufficient assets in the RESP to repay the full amount, the repayment is to be apportioned proportionally among the federal incentives and the provincial incentives administered by ESDC.

Proportional partial transfers

An RESP subscriber may request to transfer the property in one RESP to another. Transfers of education savings incentives are subject to eligibility requirements in the applicable federal and provincial legislation. If an education savings incentive is transferred ineligibly, it must be repaid to the appropriate federal or provincial government.

One such requirement for transfers of the Saskatchewan Advantage Grant for Education Savings (SAGES) and the QESI is that the promoter of the RESP receiving the transferred property has entered into an agreement with the Minister of Employment, Workforce Development and Labour, or the provincial minister, for the administration of the provincial incentive.

An additional transfer requirement, in subsection 16(2) of the Regulations, applies in cases of partial transfers of property from one RESP to another RESP. This requirement is that all property in the RESP, including the contributions, earnings and federal and provincial incentives, but not the CLB, must be transferred proportionally. If this requirement is not met, all of the CESG and CLB in the RESP must be repaid to the Government of Canada.

This requirement means that an ineligible transfer of a provincial incentive, for example because the promoter of the RESP receiving the transfer has not entered into an agreement for the administration of the provincial incentive, makes the transfer of the CESG and CLB ineligible, requiring these incentives to be repaid.

EAP calculations

An EAP is a payment from an RESP to a beneficiary who is enrolled in post-secondary education. EAPs consist of amounts of education savings incentives, as well as the accumulated income earned on the investments in the RESP. The actual amounts of the CESG and CLB to be paid are determined by formulas in section 10 of the Regulations, which are intended to divide EAP amounts proportionally. However, in certain situations, some education savings incentives cannot be paid in an EAP, for example when the beneficiary has already received the lifetime CESG limit of $7,200 in previous EAPs, or the beneficiary does not meet the residency requirements. The EAP formulas do not currently take these situations into account.

As a result, when an incentive in the RESP cannot be included in an EAP, the current formulas result in a lower EAP amount than the amount requested by the beneficiary, and do not provide a method to calculate the remaining balance from the incentives available to the beneficiary. The formulas also do not provide guidance on how to calculate earnings as part of an EAP.

Repayment of a pending grant

Subsection 5(1) of the Canada Education Savings Act states that the CESG must be paid in respect of contributions made to an RESP. After the CESG has been paid on a contribution made to an RESP, it is referred to as an “assisted contribution.” If assisted contributions are withdrawn before the beneficiary is eligible to receive an EAP, then the CESG paid on those contributions must be repaid.

The CESG is paid on a monthly basis.

The Canada Education Savings Program (CESP) system processes transactions requesting the CESG based on contributions made, at least, one month earlier. This delay makes it possible for the contribution to be withdrawn before the grant request is processed in the system. In such instances, due to the timing of the contribution withdrawal, the promoter would receive the CESG for deposit in an RESP despite the contribution no longer meeting the conditions for payment of the grant, at the time of the grant payment, as it is no longer in the RESP. The amendment seeks to provide greater clarity on the requirement for RESP promoters to repay a grant when the contribution has been withdrawn.

SJCSR observations

Technical amendments are required to address concerns raised by the SJCSR concerning subjective provisions and language inconsistencies in the Regulations. More specifically, the SJCSR expressed concern that the phrase “in the opinion of the Minister” in paragraphs 4(1)(g) and 6(1)(f) made these provisions subjective in nature.

Inconsistency in the title

A technical amendment is required to resolve a language inconsistency between the French and English names of the Regulations.

Objectives

The objectives of the Amendments are to

Description

The Amendments address the aforementioned issues in the Regulations as follows:

Proportional repayment after an investment loss

The requirement in paragraph 11(4)(b) to repay the entire fair market value of the property held in connection with the RESP to the Government of Canada as federal education savings incentives is removed, and replaced with a requirement to repay an amount given by a formula, which results in the repayment being split proportionally between the federal and provincial education savings incentives.

Proportional partial transfers

Provincial education savings incentives are exempted from the requirement that, in cases of a partial transfer of property from one RESP to another RESP, all property in the RESP, other than the CLB, be transferred in proportion to the total amount of property transferred. This means that if a provincial incentive is transferred ineligibly, only the provincial incentive has to be repaid.

EAP calculations

The EAP formulas of the Regulations are amended to clarify that the EAP must be calculated so as to include proportional amounts of the CESG, the CLB, and the earnings available to the beneficiary for an EAP. The amount available to the beneficiary for an EAP is defined so that the EAP formulas take into account residency requirements, the $7,200 CESG limit, and similar limits in provincial legislation.

Repayment of a pending grant

The Amendments clarify the requirement to repay the CESG paid in respect of contributions that have been withdrawn.

SJCSR observations

Paragraphs 4(1)(g) and 6(1)(f) are amended to remove the phrase “in the opinion of the Minister.”

The word “considérée” is replaced with the word “réputée” in subsection 17(3) of the French version of the Regulations to align with the other provisions of the Regulations.

Inconsistency in the title

The title of the French version of the Regulations is replaced with “Règlement canadien sur l’épargne-études” to match the English version.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs to small business.

Consultation

The governments of Quebec, Saskatchewan and British Columbia, who offer education saving incentives in RESPs, were consulted and all agreed, in principle, with the Amendments. Consultations with the Government of Quebec will continue in support of amendments to provincial legislation.

Initial consultations with RESP promoters, trustees and service providers have taken place. These stakeholders generally either supported or did not object to the Amendments. Out of the 88 stakeholders who were consulted, a few responded that they supported the Amendments but identified one or more amendments that would require computer system changes. In addition, two promoters have expressed opposition. The outstanding issues raised by the promoters were as follows:

ESDC responded that the Amendments would maintain the detailed formulas. There should be no loss of detail, perceived or actual.

ESDC maintains that this amendment clarifies an existing requirement in the Regulations and does not increase the administrative burden for RESP promoters. On the other hand, the option proposed by the RESP promoter would require promoters to report additional information to ESDC, which would likely have the effect of increasing administrative burden.

The proposed Amendments were published in the Canada Gazette, Part I, on June 23, 2018, for a 30-day public comment period. A total of four comments were received from stakeholders, all from RESP promoters.

While three comments were received requesting examples or clarification of one or more amendments, no stakeholders commented on the regulatory text.

Two RESP promoters expressed concerns about the proposed coming-into-force date of September 1, 2019. One RESP promoter expressed the concern that they required sufficient lead time to make computer system changes to comply with the amendments relating to proportional repayment after an investment loss and EAP calculations. A second RESP promoter asked that ESDC align the coming-into-force date with other non-related proposals, which will require the promoter to make additional computer system changes: one which is anticipated to come into force on April 30, 2020, and one other with a yet to be determined coming-into-force date. Neither promoter indicated that they would be unable to comply with the September 1, 2019, coming-into-force date that was proposed in the publication of the amendments in the Canada Gazette, Part I.

The coming-into-force date is unchanged from prepublication. It gives at least six months after registration of the Amendments to make any required computer system changes, which should provide sufficient time for RESP promoters to ensure compliance. In addition, the Amendments bring financial benefits to RESP beneficiaries and provincial governments, and benefit RESP promoters by improving the administration of EAPs. Additional delays to accommodate the RESP promoters who expressed concerns could have adverse impacts on RESP promoters that did not express concerns.

Rationale

These Amendments are required to improve and simplify the administration and delivery of the CESG and the CLB in RESPs, to align the Regulations with current operational requirements, and to improve the stewardship of the education savings incentives in RESPs.

Affected stakeholders (organizations who offer RESPs and education savings incentives to their clients, and provincial governments who pay education savings incentives in RESPs) were consulted in the development of the Amendments. To the extent possible, the Amendments have addressed the issues and concerns that were raised during these consultations.

The amendment making repayments proportional in the case of an investment loss provides a financial benefit to provincial governments by ensuring that repayments are distributed proportionally between federal incentives and provincial incentives.

The change to the rules concerning proportional partial transfers results in a financial benefit to RESP beneficiaries by mitigating the risk of having to repay the CESG and the CLB in instances of an ineligible transfer of provincial education savings incentives. By permitting these assets to remain in RESPs, this amendment enables more beneficiaries to finance their participation in postsecondary education.

The revisions to EAP calculations improve the administration of EAPs for RESP promoters by clarifying how EAPs are calculated when an incentive cannot be paid in the EAP.

The amendment requiring the repayment of a pending grant further improves the stewardship of public funds by providing greater clarity of the existing requirement to repay the CESG received ineligibly.

The incremental costs of the Amendments to the Government of Canada are expected to be negligible. There may be a small but negligible financial benefit to the Province of Quebec due to the proportional repayment after an investment loss amendment. No other impacts are expected on the provincial governments that offer education savings incentives.

Some compliance costs are expected to be incurred by RESP promoters to modify computer systems to comply with one or more of the amendments. As these Amendments are based on existing operational policies, some RESP promoters are already in compliance with one or more of the amendments.

Implementation, enforcement and service standards

Upon registration of the Amendments, ESDC will provide a delayed coming-into-force period of no less than six months, with implementation on September 1, 2019, to give RESP promoters sufficient time to implement any computer system changes related to these Amendments. The delayed coming into force does not apply to the technical amendments made in response to SJCSR observations, or to correct language inconsistencies, as these amendments will have no impact on RESP promoters or provinces.

The RESP Provider User Guide, the ESDC transfer form, and other training and policy guidance materials will be updated to accompany the amended Regulations.

Contact

Chantal Simard
Director
Canada Education Savings Program
Employment and Social Development Canada
140 Promenade du Portage, Phase IV, Mailstop: Bag 4
Gatineau, Quebec
K1A 0J9
Telephone: 819-654-8497
Fax: 819-654-8703
Email: chantal.simard@hrsdc-rhdcc.gc.ca