Anti-avoidance rules prevent aggressive tax planning and misuse of tax shelters which result in tax avoidance.
Already in place for Registered Retirement Savings Plans (RESPs), Tax-free Savings Accounts (TFSAs), and Registered Retirement Income Funds (RRIFs), the 2017 federal budget announced that anti-avoidance rules will also be extended to Registered Education Savings Plans (RESPs) and Registered Disability Savings Plans (RDSPs).
These new rules will be effective for all transactions, income earned, capital gains accruing, and investments bought by an RESP or RDSP after March 22, 2017.
What are the anti-avoidance rules for RESPs and RDSPs?
The new anti-avoidance rules will implement a special tax on:
- Certain tax advantages that exploit the tax attributes of an RESP or RDSP (such as a reduction in value of the plan without including it in your income or swap transactions where property is moved out of the account and other property moved into the account)
- Prohibited investments that includes debt of the RESP subscriber or RDSP holder and investments in entities which are not at arm’s length investments (subscriber or holder or a non-arm’s length person has more than 10% interest in the portfolio)
- Non-qualified investments that do not fit in the classes of investments that can be held in the plan (as described in the Income Tax Act and the Income Tax Regulations)
As with all rules, there are some exceptions to the new anti-avoidance rules. Refer to the CRA website for more information on these exceptions.
What if my RESP/RDSP had an inappropriate transaction?
You can correct previous years’ errors or omissions through the CRA’s Voluntary Disclosure Program before any compliance action has started against you. In this case, you might only have to pay the taxes plus any interest you owe.