2014-0526781E5 Employee benefit - RESP donation

Principal Issues: Whether an employer’s gift towards an RESP for an employee’s child is taxable?

Position: In this case, most likely yes.

Reasons: See response below.

Author: Underhill, Cynthia
Section: 6(1)(a)(vi); 56(1)(n); 56(1)(q); 56(2); 146.1(1)

XXXXXXXXXX
                                                                                                                                                       2014-052678
                                                                                                                                                       C. Underhill
November 10, 2014

Dear XXXXXXXXXX:

Re: Employee benefit - donation to a registered education savings plan

We are writing in response to your letter of February 10, 2014, wherein you asked about the taxation of an employer’s gift towards a registered education savings plan (RESP) for an employee’s child.

In the situation described, an employee had a workplace accident and will not be able to work for an indefinite period of time. Although the employee is currently receiving workplace safety insurance benefits, the employee is in a situation of financial hardship. The employer plans on making a one-time compassionate gift towards an RESP for the employee’s child.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

You have stated that the employer’s gift towards the RESP would be paid directly to the financial institution where the RESP is held. Whether an employer can make a contribution directly to an RESP for an employee’s child is a question of fact and law. For further information, please go to http://www.cra-arc.gc.ca/tx/rgstrd/resp-reee/fq-eng.html#subscriber.

As stated in paragraph 4 of Interpretation Bulletin IT-334R2, Miscellaneous Receipts, amounts received as gifts (i.e., voluntary transfers of real or personal property without consideration) are not subject to tax in the hands of the recipient.  However, when a voluntary payment or other valuable transfer or benefit is received by an employee from an employer, or from some other person, by virtue of an office or employment, the amount of the payment or the value of the transfer or benefit is generally included in income under subsection 5(1) or paragraph 6(1)(a) of the Act. The broad wording of paragraph 6(1)(a) of the Act means that a taxable benefit may exist where there is any connection between a benefit and the particular office or employment. Therefore, an employer’s gift towards an RESP for an employee’s child would be taxable to the employee unless it is specifically excluded by another provision or received in the person's capacity as an individual.

Subparagraph 6(1)(a)(vi) of the Act provides that any benefit an employee’s family member receives or enjoys under an educational program offered by an arm’s length employer will not be included in the employee’s income. This generally applies to scholarships or bursaries (e.g., free or reduced tuition fees) provided to an employee’s family member to attend an elementary, secondary, or post-secondary school. Scholarships and bursaries are amounts paid or benefits given to students to enable them to pursue their education. Contributions to an RESP are paid to a beneficiary (e.g., family member) only after he or she has enrolled in an institution of higher learning. Therefore, it is our view that a contribution to an RESP is not an amount paid to a family member. In addition, the family member does not receive or enjoy any benefit at the time the contribution is made to the RESP. As a result, subparagraph 6(1)(a)(vi) would not exclude an employer’s gift towards an RESP for an employee’s child from an employee's income.

An amount is generally considered to be received in a person's capacity as an individual, as opposed to his or her capacity as an employee, where the amount is: philanthropic; voluntary; not based on employment factors such as performance, position, or years of service; and not made in exchange for employment services.

It is a question of fact whether an amount is received by virtue of a person’s employment or in the person’s capacity as an individual. Since the employer’s gift appears to be connected to the workplace accident, it is our view that the gift is likely received by virtue of the person's employment. As such, the gift (i.e., the contribution to the RESP) would be included in the income of the employee under paragraph 6(1)(a) of the Act at the time of the contribution. For information on how payments from an RESP are taxed, please see http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/pymnts/menu-eng.html.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate

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