How to avoid CESG clawback for US/CAN dual citizen RESP beneficiary who may attend a US university?
Context:
RESP Beneficiary: US/Canadian dual citizen child, planning to attend a US university in 4 years. Has lived in Canada since age 1, and goes to school in Canada.
RESP subscriber: Canadian (only) parent
Issue:
It seems my child (by virtue of being a US citizen) would be considered a US tax resident as soon as they start school in the US. Unless my child is able to claim dual residency for tax purposes after going to the US, CESG will get clawed back. At least, that is my understanding.
Questions:
a) Are there any strategies for my child to continue to claim Canadian (or dual US/CAN) tax residency after starting school in the US so that the CESG will not be clawed back? (Article IV (2) of the Canada US tax treaty provides some hope)
b) If not, what should I do now with my accumulated RESP funds (around $62k in total, including own contributions, cap gains, CESG)?
Thanks!
CESG clawback - RESP
Moderator: Mark T Serbinski CA CPA
Re: CESG clawback - RESP
I dont believe CESG will be clawed back in your scenario.
For tax-purposes since you are based in Canada your child is also deemed to be a resident of Canada.
Your child, by being a US Citizen, has tax paying/filing responsibility regardless of the country of residence. Check with a US tax accountant if this will attract any taxes and/or filing requirement.
But I am very certain that CESG will not be clawed back as you and your child have lived in Canada throughout.
For tax-purposes since you are based in Canada your child is also deemed to be a resident of Canada.
Your child, by being a US Citizen, has tax paying/filing responsibility regardless of the country of residence. Check with a US tax accountant if this will attract any taxes and/or filing requirement.
But I am very certain that CESG will not be clawed back as you and your child have lived in Canada throughout.
Re: CESG clawback - RESP
FYI:
The tax rules typically allow you (if parent is USC 1040 filer too) to claim a credit for a dependent child if they reside with you for more than half the year, don’t provide more than half of their own financial support, and are under the age of 19 at all times during the tax year, or under 24 if a full-time student. If your child lives outside of the home because they are away at school or due to another temporary absence, you can still claim them as a dependent as long as they meet all of the other requirements of being your dependent.
https://www.eitc.irs.gov/other-refundab ... ed-to-know https://www.irs.gov/credits-deductions/ ... s-aotc-llc
Here are some facts about tax credits for higher education:
The American Opportunity Tax Credit (AOTC) is:
• Worth a maximum benefit up to $2,500 per eligible student
• Only for the first four years at an eligible educational or vocational institution
• For students pursuing a degree or other recognized education credential
• Partially refundable. Taxpayers can potentially get up to $1,000 back
The Lifetime Learning Credit (LLC) is:
• Worth up to $2,000 per tax return, per year, no matter how many students qualify
• Available for all years of postsecondary education and for courses to acquire or improve job skills
• Available for an unlimited number of tax years
Remember, to claim the AOTC or LLC, taxpayers must use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if they claim the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form. To be eligible to claim the American Opportunity Tax Credit or Lifetime Learning Credit, the law requires taxpayers (or their dependents) to have received a Form 1098-T,Tuition Statement, from an eligible educational institution. There are exceptions for some students. For a complete explanation of all education benefits, read IRS Publication 970, Tax Benefits for Education.
Will child earn at least USD $14,600 in 2024? This amount would include portions of scholarships that are not applied to tuition. A scholarship or fellowship grant is tax free only to the extent it doesn't exceed your qualified education expenses such as tuition and fees,
course-related expenses, isn't designated or earmarked for other purposes such as room and board and doesn't represent payment for teaching, research, or other services required as a condition for receiving the scholarship.
U.S. citizens resident of Canada can get financial aid to study in US and U.S. citizens can even get US financial aid to study in Canada.
United States citizens can file the Free Application for Federal Student Aid (FAFSA®) and be eligible for financial aid to study in Canada.
The process of applying for federal student aid to study in Canada is the same for students who wish to attend school in the United States. All students are required to file the FASFA. On the application, students can choose which schools they would like their information shared with. First, you should call your school in Canada and make sure they participate in the federal student aid program. Then, if they are, make sure to add your school to the FAFSA.
The tax rules typically allow you (if parent is USC 1040 filer too) to claim a credit for a dependent child if they reside with you for more than half the year, don’t provide more than half of their own financial support, and are under the age of 19 at all times during the tax year, or under 24 if a full-time student. If your child lives outside of the home because they are away at school or due to another temporary absence, you can still claim them as a dependent as long as they meet all of the other requirements of being your dependent.
https://www.eitc.irs.gov/other-refundab ... ed-to-know https://www.irs.gov/credits-deductions/ ... s-aotc-llc
Here are some facts about tax credits for higher education:
The American Opportunity Tax Credit (AOTC) is:
• Worth a maximum benefit up to $2,500 per eligible student
• Only for the first four years at an eligible educational or vocational institution
• For students pursuing a degree or other recognized education credential
• Partially refundable. Taxpayers can potentially get up to $1,000 back
The Lifetime Learning Credit (LLC) is:
• Worth up to $2,000 per tax return, per year, no matter how many students qualify
• Available for all years of postsecondary education and for courses to acquire or improve job skills
• Available for an unlimited number of tax years
Remember, to claim the AOTC or LLC, taxpayers must use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if they claim the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form. To be eligible to claim the American Opportunity Tax Credit or Lifetime Learning Credit, the law requires taxpayers (or their dependents) to have received a Form 1098-T,Tuition Statement, from an eligible educational institution. There are exceptions for some students. For a complete explanation of all education benefits, read IRS Publication 970, Tax Benefits for Education.
Will child earn at least USD $14,600 in 2024? This amount would include portions of scholarships that are not applied to tuition. A scholarship or fellowship grant is tax free only to the extent it doesn't exceed your qualified education expenses such as tuition and fees,
course-related expenses, isn't designated or earmarked for other purposes such as room and board and doesn't represent payment for teaching, research, or other services required as a condition for receiving the scholarship.
U.S. citizens resident of Canada can get financial aid to study in US and U.S. citizens can even get US financial aid to study in Canada.
United States citizens can file the Free Application for Federal Student Aid (FAFSA®) and be eligible for financial aid to study in Canada.
The process of applying for federal student aid to study in Canada is the same for students who wish to attend school in the United States. All students are required to file the FASFA. On the application, students can choose which schools they would like their information shared with. First, you should call your school in Canada and make sure they participate in the federal student aid program. Then, if they are, make sure to add your school to the FAFSA.
Re: CESG clawback - RESP
Interesting.
Not sure this answers any of the OP's questions...
More useful for the "One night stand" evening.
Not sure this answers any of the OP's questions...
More useful for the "One night stand" evening.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Re: CESG clawback - RESP
post began FYI. Helpful info for the poster, never intended or stated purpose of addressing the posed question. Glad you enjoyed the one night stand reply LOL