Notice #826 – Questions and answers pertaining to the Canada Education Savings Regulations (CESR) amendments

Information bulletin

Number:
CESP/PCEE-2019/20-003-826

Date:
August 13, 2019

Subject:
Questions and answers pertaining to the Canada Education Savings Regulations (CESR) amendments

Previous bulletin

This notice follows Information Bulletin #802, dated January 8, 2019, which informed promoters about the publication of the amendments in the Canada Gazette and provided examples.

Purpose

The purpose of this Information Bulletin is to provide answers to commonly asked questions regarding the regulatory changes.

Background

The Regulations Amending the Canada Education Savings Regulations have been made and were published in the Canada Gazette, Part II on December 26, 2018 (See the official pdf and non-official html versions).

The following is a collection of commonly asked questions and answers regarding those regulatory amendments, which impact proportional repayments, proportional partial transfers, repayment of pending grant, and educational assistance payment (EAP) calculations.

Implementation Date

Question 1: Is September 1, 2019 the deadline for these changes to take effect, or do you believe that there could be some delay?

Answer 1: No delays are anticipated. The regulatory changes are expected to be administered as of September 1, 2019.

Question 2: Are promoters required to have their systems updated by September 1, 2019?

Answer 2: Promoters are expected to have processes or procedures in place to address the changes that impact them in the absence of system changes.

Question 3: May promoters implement the EAP formula changes prior to September 1, 2019?

Answer 3: Promoters are expected to change formulae as of September 1, 2019. Up to that date the “old” formulae must be used.

Question 4: If a promoter must backdate an EAP prior to September 1, 2019, would the promoter be required to use the “old” formulae to calculate this EAP?

Answer 4: If an EAP with a transaction date prior to September 1, 2019, is reversed on or after September 1, 2019, the plan cash balance and notional values will need to be reinstated as originally calculated.
If a recalculation is necessary for this EAP, the promoter would be required to use the “old” formulae to re-calculate this EAP.

EAP Formulae

Question 1: Are the new Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) formulae replacing both the formulae for Registered Education Savings Plans (RESP) with earnings and no earnings? Are the proportional formulae changing?

Answer 1: Yes, the new EAP formulae will replace both the RESP with earnings and RESP without earnings formulae. The new EAP formulae have built-in proportionality and provide guidance on how to calculate earnings as part of an EAP.

Question 2: When the CESG limit has been reached while calculating an EAP, the resulting calculation provides an EAP amount that is lower than the EAP requested. How is this rectified?

Answer 2: :
In these scenarios, the EAP formulae do not result in EAP portions that add up to the full requested EAP amount. However, the beneficiary still has amounts in the RESP available for an EAP. The promoter can handle this situation by calculating the remaining portion of the EAP amount requested as if it were a separate EAP. Notional account balances must be updated between calculations.

It is also important to include only the eligible incentives in the total amount available to the beneficiary.

Please note that this situation was not introduced by the amended EAP formulae. The current advice for how promoters should handle this situation is consistent with that given in Information Bulletin #405.

Question 3: Since the EAP formulae no longer differentiate between positive and negative accumulated income, where the plan has investment losses, is the expectation to set the accumulated income variable to $0?

Answer 3: Yes. The same logic would also apply if the CESG limit has been reached; the CESG amount would be reduced to zero.

For example:

A subscriber requests an EAP of $5,000 for a beneficiary who has received $6,326.89 of their CESG lifetime limit, and who is eligible to receive the Saskatchewan Advantage Grant for Education Savings (SAGES).

RESP Account Balances:

Accumulated income	SAGES	Beneficiary’s CLB	CESG (grant account)	Contributions	Fair Market Value
$4,788.32	$1,779.45	$0	$11,030.27	$72,383.88	$89,981.92

EAP amount available to the beneficiary:

Accumulated income + eligible provincial grants + beneficiary’s CLB + CESG (if less than $7,200 already paid, the entire grant account of the RESP is included)
= $4,778.32 + $1,779.45 + $0 + $11,030.27
= $17,598.04

CESG portion of the EAP:
The lesser of (A) and (B)

(A) A × D/C

where:
A is the amount of the EAP requested,
D is the balance in the grant account of the RESP immediately before the payment of the EAP, and
C is the total amount available to the beneficiary for an EAP, as defined in subsection 10 (2.2) of the Canada Education Savings Regulations
= $5,000.00 x $11,030.27 / $17,598.04
=$3,133.95

(B) the amount by which $7,200 is greater than the aggregate of all amounts determined under this subsection in respect of an EAP previously made by the promoter to the beneficiary.
=$7,200.00 - $6,326.89
= $873.11

Accumulated income portion of the EAP

A × E/C

where:
A is the amount of the EAP requested,
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, as defined in subsection 10 (2.2) of the Canada Education Savings Regulations
= $5,000.00 x $4,788.32/$17,598.04
= $1,360.47

SAGES portion of the EAP

A × G/C

where:
A is the amount of the EAP requested,
G is the balance in the SAGES account of the RESP immediately before the EAP is made, and
C is the total amount available to the beneficiary for an EAP, as defined in subsection 10 (2.2) of the Canada Education Savings Regulations
= $5,000.00 x $1,779.45/$17,598.04
= $505.58

Calculating the first portion:

EAP1 = CESG + Accumulated Income + SAGES
EAP1 = $873.11 + $1,360.47 + $505.58
EAP1 = $2,739.16

Updated RESP account balances subtracting the incentives already calculated (EAP1)

Accumulated income	SAGES	Beneficiary’s CLB	CESG (grant account)	Contributions	Fair Market Value
$3,427.85	$1,273.87	$0	$10,157.16	$72,383.88	$87,242.76

Remainder of the EAP to calculate:

EAP2 = EAP requested – EAP 1
EAP2 = $5,000.00 – $2,739.16
EAP2 = $2,260.84

EAP amount available to the beneficiary:

Accumulated income + eligible provincial grants + beneficiary’s CLB + CESG (if less than $7,200 already paid, the entire grant account of the RESP is included)
= $3,427.85 + $1,273.87+ $0 + $0
= $4,701.72

Accumulated income portion of the EAP

A × E/C

SAGES portion of the EAP

A × G/C

Calculating the second portion:

EAP2 = Accumulated Interest + SAGES
EAP2 = $1,648.29+ $612.55
EAP2 = $2,260.84

Verifying the results:

Total EAP = EAP1 + EAP2
Total EAP = $2,739.16 + $2,260.84
Total EAP = $5,000.00

Proportional Partial Transfer

Question 1: How does the proportional partial transfer regulatory change impact the repayment of incentives during an ineligible transfer?

Answer 1:
The amendments to subsection 16(2) of the CESR exempted provincial education savings incentives from being transferred proportionally to ensure that ineligible transfers of provincial education savings incentives do not result in the repayment of federal education savings incentives.

Therefore, in a situation where a provincial education savings incentive is transferred ineligibly, only the provincial incentive has to be repaid.

Question 2: Does the pre-transfer repayment policy continue to apply?

Answer 2: Promoters may continue to repay the balance of any incentive administered by ESDC, prior to a transfer, which would otherwise cause the transfer to be ineligible. However, effective September 1, 2019, an ineligible transfer of a provincial education savings incentive will not result in the repayment of federal education savings incentives.

Question 3: Does the proportional partial transfer amendment in the CESR mean that all provincial education savings incentives will now be exempt from the requirement to be transferred proportionally?

Answer 3:
Transfers of education savings incentives are subject to eligibility requirements in the applicable federal and provincial legislation. These governing authorities continue to require proportional partial transfers of assisted contributions, unassisted contributions, accumulated income, CESG and SAGES.

The British Columbia Training and Education Savings Grant (BCTESG) legislation is silent on the requirement for proportional partial transfers. Following the regulatory change to proportional partial transfers in the CESR, the province of British Columbia will no longer require that the BCTESG be transferred in the same proportion as the other incentives being transferred. Following the RESP Advisory Group consultation on the proposed amendments to the transfer form to reflect the policy, the Government of British Columbia has agreed to provide promoters with an extended period of time to adopt the changes impacted by the regulatory amendments.

Implementation is now planned for the spring of 2020.

Additional information on the requirements of this policy change will be forthcoming.

Question 4: Could you provide examples of the changes to transfers involving the BCTESG?

Answer 4: An information Bulletin on the BCTESG Transfers Policy will be provided to RESP promoters to clarify the transfer requirements.

Repayment of a Pending Grant

Question 1: What change is introduced by the ‘repayment of a pending grant’ regulatory amendment?

Answer 1: The amendment to the portion of subsection 4(1) of the CESR before paragraph (a) clarifies the requirement to repay the CESG paid in respect of contributions that have been withdrawn. When assisted contributions are withdrawn before the beneficiary is eligible to receive an EAP, the CESG must be repaid on those contributions as well as any pending CESG. The CESP system processes transactions requesting the CESG based on contributions made at least one month earlier. This delay makes it possible for the assisted contributions to be withdrawn from the RESP before the CESG is paid. In such instances, due to the timing of the contribution withdrawal, the promoter would receive the CESG despite the contributions no longer meeting the conditions for payment of the CESG at the time of the grant payment.

Question 2: Is the promoter responsible for sending the grant repayment, or will ESDC claw back the money?

Answer 2: The promoter is required to submit a repayment transaction for any CESG they receive, when they receive it, which was paid in respect of contributions that have been withdrawn.

Proportional Repayment after an investment loss

Question 1: When repaying CESG and CLB after an investment loss the formula provides the sum of both incentives, however, it does not stipulate how much of each incentive to pay back. How is that determined?

Answer 1: The CESG and CLB amounts are to be paid back proportionally, this remains unchanged.

Québec Education Savings Incentive (QESI)

Question 1: How do the regulatory changes affect the QESI?

Answer 1:
ESDC does not administer the QESI. For all questions regarding QESI and its interactions following the publication of the Regulations Amending the Canada Education Savings Regulations, please contact Revenu Québec.

For your information, Revenu Québec published an Information Bulletin on July 22, 2019, entitled “Harmonization with Certain Measures Announced by the Federal Government”, which outlines the position of the Ministère des Finances du Québec on the amendments to the CESR.

Updates to the RESP promoter resources

Due to the above changes, the RESP promoter resources will be updated on Canada.ca/RESPresources to reflect these changes in the near future.

Contact us

If you have any questions regarding this information bulletin, please contact us by e-mail at cesp-pcee@hrsdc-rhdcc.gc.ca or call at 1-888-276-3624. Our hours of operation are from 8:00 to 17:00 Eastern Time.

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2019-08-22