Reporting RESP Government Grant as interest, capital gain or capital gain distribution?

[maskdoll]

I got to know that RESP is no longer subject to 3520/3520-A reporting.
However, do we still need to report dividend, interest, etc on 1040 as foreign income annually?
Specifically, I want to know how to report the Government Grant. It's basically cash sitting in the brokage account. Shall I report it as interest? divident? capital gain? capital gain distrubtion?

Thanks

[MGeorge]

Hello,

I would not report grant money has interest or dividends. It is effectively a payment from government with a contractual obligation that you'll use the money for the beneficiary's education.
I have heard the position that it does not need to be reported in the year received because the RESP holder has no financial interest in the money unless conditions are met - and these conditions are met when the money is withdrawn as an EAP (and thus taxable at that time).
I don't do this - I just report it as "other income" with an explanation.

Most importantly - this payment is "general category" income for purposes for form 1116 - so any excess foreign tax credit from employment or pension income can be used to offset (and probably) eliminate any tax owning on the grant money. The grant is not passive income.

I hope this helps - please note - I'm not an expert.

[nelsona]

M Gearge

That is not a bad position to take: It is not passive income for foreign tax credit purpose, but it is also not earned income for FEIE purposes.

I wouldn't use the terms "interest" or "dividends" either as this would imply special tax treatment by treaty, which it isn't really entitled to.

"Other income" fits nicely. Gen limit foreign income