Canada's federal government is proposing to extend a number of existing anti-avoidance rules that currently exist for tax-free savings accounts (TSFAs), RRSPs and RRIFs to registered education savings plans (RESPs) and registered disability savings plans (RDSPs) in this year's federal budget.
RESPs and RDSPs are tax-assisted registered plans. RESPs help families accumulate savings for a child's post-secondary education while RDSPs allow persons with disabilities — and their families — to save for the future.
The anti-avoidance rules that currently exist for TFSAs, RRSPs and RRIFs help ensure that the plans do not provide excessive tax advantages unrelated to their respective basic objectives, the government says.
These rules include:
- the advantage rules, which help prevent the exploitation of the tax attributes of a registered plan (e.g., by shifting returns to a registered plan from a taxable investment);
- the prohibited investment rules, which generally ensure that investments held by a registered plan are arm's length "portfolio" investments; and
- the non-qualified investment rules, which restrict the classes of investments that may be held by a registered plan.
Watch: Changes to RESPs and RDSPs
Read: Budget 2017
Extending these rules to RESPs and RDSPs would improve the consistency of the tax rules governing registered plans, the government argues. The budget document says that the changes won't affect the vast majority of RESP and RDSP holders, who typically invest in ordinary portfolio investments.
Subject to certain exceptions, this measure will apply to transactions occurring, and investments acquired, after Budget Day. For this purpose, investment income generated after Budget Day on previously acquired investments will be considered to be a "transaction occurring" after Budget Day.