Qualified Investments for RESPs

What Is a Qualified Investment for an RESP?

Qualified Investments are investments permitted in Registered Education Savings Plans (RESPs).  Common types of qualified investments for RESPs may include1:

  • Deposits and cash equivalents such as GICs, term deposits, and treasury bills.
  • Listed securities including stocks, ETFs, mutual funds, and REITs traded on designated stock exchanges.
  • Debt obligations like government bonds, investment-grade corporate bonds, and insured mortgages.
  • Precious metals limited to specific gold and silver bullion meeting CRA’s purity requirements.
  • Certain annuity contracts and venture capital investments subject to eligibility criteria.

Prohibited Investments such as investments involving close associates (e.g., subscriber’s own company) are not allowed and could trigger penalties.  The CRA provides guidance in Income Tax Folio S30F10-C1 for maintaining the RESP’s tax-sheltered status and avoiding penalties.

Penalties for Non-Qualified Investments

Non-Qualified Investments are subject to special tax2.  If an RESP acquires or holds a non-qualified investment, consequences include:

  • A 50% tax penalty on the fair market value of the non-qualified asset.
  • Ongoing tax on income or gains generated from that investment while it remains non-qualified.
  • The possibility of reversing some penalties if the investment is disposed of in a timely manner or becomes re-qualified.

Promoter and Trustee Obligations

RESP promoters and trustees must ensure only qualified investments are held. They are responsible for monitoring, reporting, and applying due diligence to protect both investors and compliance status3.

Sources

  1. Canada Revenue Agency. Income Tax Folio S3-F10-C1: Qualified Investments — RRSPs, RESPs, RRIFs, RDSPs, and TFSAs – Section: Qualified Investments. Government of Canada.
  2. Ibid. See “Tax on Non-Qualified Investments.”
  3. Ibid. See “Trustee/Promoter Responsibilities.”
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