The federal government first introduced Registered Education Savings Plans (“RESPs”) over 40 years ago to encourage Canadians to save towards their children’s post-secondary education.
It all started as a result of a court ruling in 1972.[1]
Jack Harvie Quinn (“Mr. Quinn”) challenged an assessment wherein interest in the amount of $110.44 earned on principal amounts deposited by him with the Canada Permanent Trust Company relating to a contract with the Canadian Scholarship Trust Fund (the “Fund”) was included as Mr. Quinn’s income for the preceding taxation year.
Under this particular contract, the Fund was to provide tuition fees and other assistance if and when Mr. Quinn’s youngest son succeeded in entering the second year of a university course. If that did not take place, Mr. Quinn would then be entitled to recover his principal deposits, but all interest accumulations would be forfeited to the Fund. At no point in time would Mr. Quinn be entitled to a larger amount than the aggregate of his premiums or contributions under this plan.
This dispute went all the way to the Federal Court, where the higher court sided with Mr. Quinn, finding that he should not have had to pay income tax on money that he saved through the Fund for his son. It was held that an interest account kept in the name of a subscriber, but which he could not draw out of or use for his own purposes, could not be construed as income in his hands.
Though it was a small amount of money that was in dispute, this decision set an important precedent, and the government introduced RESPs into tax legislation as a result.
The RESP program has undergone various changes through the years, but the nature of the plan has not changed. RESPs are still education savings plans registered with the Canada Revenue Agency that Canadians typically use to save for their children’s post-secondary education.
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