“I turn to the nature of an RESP, which is dealt with both in the Income Tax Act, as well as in certain case law.
Firstly, an RESP is not a section 7 expense. Parents cannot be compelled by Court Order to contribute into one, absent an agreement. See Popovski v. Pirkova, 2017 ONSC 2363 at 49; see also Smith v. Smith, 2011 NSSC 269 at 80. Despite that, in this case, the parents initially agreed to contribute into RESPs in a certain way and to allocate that money in a certain way. And they subsequent altered that agreement.
Nevertheless, the RESPs are still assets that are owned by one or the other. Although neither parent tendered her and his RESP plan documents setting out the terms of the plans, the statements do indicate that the mother is the owner of the plan for H.S., and the father is the owner of the plan for I.S. that he subsequently set up.
At paragraphs 34-38 of Vetrici v. Vetrici, 2015 BCCA 146, the British Columbia Court of Appeal wrote the following about the nature of RESPs:
[34] The RESP is a type of investment registered pursuant to s. 146.1 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). A RESP is a savings / investment vehicle for anticipated post-secondary education costs that provides two benefits: (a) income tax deferral on investment income (s. 146.1(6)); and (b) matching grants from the federal and some provincial governments. Practically speaking, a RESP is an agreement between a “subscriber” (typically, a parent or grandparent) and the “promoter” (i.e., provider) of an investment product (often a chartered bank) to invest the subscriber’s contributions consistent with s. 146.1. However, unlike contributions to a Registered Retirement Savings Plan (“RRSP”), the contributions to a RESP are made from tax-paid funds.
[35] When a RESP is opened, the subscriber names a beneficiary (typically, a child or grandchild) (s. 146.1(1)). If in the future the beneficiary enrolls in an eligible post-secondary institution, then the subscriber can request the promoter to make educational assistance payments to the beneficiary or to the subscriber for the beneficiary’s use (s. 146.1(2)(g.1)). The educational assistance payments are comprised of the investment income earned on the contributions and any grants (s. 146.1(1)). The subscriber also can request that the promoter pay out contributions to the beneficiary. The beneficiary claims as his or her income funds attributable to the grants and investment income, which were subject to the tax deferral, but not the proportion drawn from the contributions (s. 146.1(7)).
[36] As described by Mr. Justice Hall in Luedke v. Luedke, 2004 BCCA 327 (CanLII) at para. 25, 44 B.C.L.R. (4th) 35, a RESP is a way of “making provisions for an anticipated expense in the future”. However, contributions to a RESP and any accumulated investment income remain the property of the subscriber until the subscriber directs payment to the beneficiary. If for some reason the beneficiary does not attend an eligible post-secondary institution, the Income Tax Act provides several mechanisms to address the funds held in the RESP. In some circumstances, the funds may be transferred to the subscriber’s RRSP, less any grants, or the beneficiary’s Registered Disability Savings Plan, if he or she is eligible for one (ss. 146.1(1.1) and (1.2)). If one of those options is not available, then grant funds are returned to the government and the remaining funds are returned to the subscriber. That portion of the remaining funds attributable to investment income is taxable in the hands of the subscriber (s. 146.1(7.1)).
[37] Of particular note is that the subscriber may, at any time, withdraw from a RESP monies for which the subscriber is entitled to a refund of payments, i.e., monies that are not attributable to grants (s. 146.1(1)). When this is done, the subscriber must pay tax on any monies attributable to investment income (ss. 146.1(1), (7.1), and (7.2)). Where, on the breakdown of a marriage or common-law partnership, spouses divide a RESP by court order or agreement, the amount transferred is excluded from the recipient spouse’s income (ss. 146.1(7.1) and (7.2)).
[38] Also of note is that because a RESP belongs to a subscriber, it forms part of a deceased subscriber’s estate and, accordingly, should be taken in account for estate planning purposes: see Valorie Pawson, “Beneficiary Designations 101” (Materials prepared for the Continuing Legal Education Society of British Columbia’s Wills and Estate Planning Basics, May 2012) at 9.1.8-9.1.10.
Similarly, as Mesbur J. said in Popovski v. Pirkova at paragraph 49:
RESPs are savings vehicles, earmarked for post-secondary education of a child, but not necessarily required to be used for that purpose. I have no evidence that Mr. Popovski is prohibited from withdrawing from the RESP he has established. Importantly, I have no evidence A will necessarily attend a post-secondary institution. If and when that occurs, the funds in the RESP, if any can be taken into account in apportioning the parent’s obligations to contribute to the cost of post-secondary education.
See also M. (C.S.) v. L. (W.S.), 2015 BCPC 252 at paras. 26-28 for other case law commentary about the nature of an RESP.”