joint accounts in Canada

curious · Post by **curious** » Fri Oct 28, 2005 6:32 pm

Here is the scenario:
Wife is U.S. citizen. Husband is Canadian. They live in Canada. They have some joint accounts for which the Canadian husband is the only contributor. What are the U.S. tax implications, if any? The only IRS info I can find related to this is from their Publication 550:
<blockquote id="quote">quote:<hr height="1" noshade id="quote">Joint accounts. If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law. <hr height="1" noshade id="quote"></blockquote id="quote">
I suspect "local law" in this case means state law, in which case it says nothing about what happens outside the U.S. Also, what about capital gains?

And, just to add a further twist to all this: what happens if the joint account is an RESP (ie. they are joint subscribers, but only the Canadian husband makes any contributions)?

Thanks in advance for any help!

nelsona · Post by **nelsona** » Fri Oct 28, 2005 7:27 pm

Not very complicated.
If the American files an MFS 1040, then whatever you determine in canada to be the American's income (which you put on your return in Canada), that is the ammount you also put on the US return.

The RESPs (as they are not sheltered in US) should continue to be funded only by the Cdn. That way, when the American files their MFS return, there is nothing to worry about.

If the American files a joint return, then they should report any income that the RESP make, and report all income you both make from any investments.

nelsona non grata... and non pro

curious · Post by **curious** » Fri Oct 28, 2005 7:39 pm

Thanks for replying so quickly!

Yes, I forgot to mention: married filing separately for the 1040.

So, for an RESP, no need for a 3520 if it is funded entirely by the Canadian?

I assume the accounts still need to be reported on TD#90-22.1.

nelsona · Post by **nelsona** » Sun Oct 30, 2005 12:28 am

I would file the TD form... 3520 is probably required too.

If I were in your position, I would let hubby hold this account all by himself. There is nop advantage to being joint that I can see, and it *could* be a problem with IRS.

nelsona non grata... and non pro

curious · Post by **curious** » Mon Oct 31, 2005 3:34 pm

It certainly simplies the U.S. tax picture if the U.S. citizen wife is not a subscriber. I would really like to understand if a 3520 is required, because there are in fact a couple of advantages to having joint subscribers: (1) the ability to transfer funds to either subscriber's RRSP in the event the beneficiaries don't use all the RESP funds; (2) succession (ie. if one subscriber dies, the other automatically takes over).

But if a 3520 is required, these advantages are probably not worth the trouble.

Thanks for your help.

nelsona · Post by **nelsona** » Mon Oct 31, 2005 4:15 pm

The RESP is a trust that you control, it is held in canada (thus foreign in the eyes of IRS) and it does not fall under any protection from the US/Canada tax treaty.

Recall, that even RRSPs, which DO have special status, were required to have 3520's filed a couple of years back.

Regardless, if you and your husband ever file jointly in US, you will have to report RESP anyways, so you might as well get used to it.

nelsona non grata... and non pro

PS. Is your child a US citizen? I like to point out to US citizens living in Canada that they can get $1000 per child just for filing their 1040 with the additional child tax credit. The catch is that you generally must not fully use the FEIE, but rather use the Foreign tax credit method. You don't have to owe any tax, but you need to report about $10K of "non-excluded" income.

Check it out.

curious · Post by **curious** » Tue Nov 01, 2005 6:10 pm

Thanks for your comments and the pointer to the additional child tax credit. Don't think we can use it, but I'm sure there are others out there who can.

nelsona · Post by **nelsona** » Tue Nov 01, 2005 6:28 pm

I'd be hard-pressed to figure any situation for someone with a US citizen child who could not use it unless you are a very high-earner. Even if you don't owe a penny of US tax, you quite likely will get $1000 back.

It is really free money for those whose income is already taxed in another country.

nelsona non grata... and non pro

curious · Post by **curious** » Tue Nov 15, 2005 9:03 pm

The children are not U.S. citizens.

I am still very confused by the RESP/trust business. But this really belongs in a different thread. I will post my question to a new thread on RESPs.

Thanks.

curious · Post by **curious** » Wed Nov 16, 2005 8:12 pm

Yes. This is a topic for a different forum.

Thanks for your help. It is much appreciated.