Quick question about iBonds and EE Bonds

rsargant · Post by **rsargant** » Sat Oct 08, 2011 8:33 am

If a non USC purchases either of these while tax resident in U.S and subsequently moves to Canada, are the taxes due on interest accrued after moving deferred in Canada until the bond is redeemed?

nelsona · Post by **nelsona** » Sat Oct 08, 2011 12:02 pm

In canada, the taxes would have to be paid year-by-year.

rsargant · Post by **rsargant** » Sat Oct 08, 2011 4:11 pm

OK. So is there a way to avoid double taxation? (year over year to canada and paying again at redemption time to U.S)

Is the redemption non-taxable in U.S once you are non-resident?

That would make this work.

nelsona · Post by **nelsona** » Sat Oct 08, 2011 10:15 pm

To avoi double taxation, merely choose the accrued method in US, this will match the tax.

US govt interst is non-taxable to non-resident -- except for US citizens of course.

rsargant · Post by **rsargant** » Sat Oct 08, 2011 11:37 pm

Thanks! I thought that would be the answer (for USC anyway). Really I'm trying to understand how these will work for both me (non USC) and our children (USC) after moving back to Canada.

If the bonds are in my chlldren's name (and they are resident in Canada) , sounds like they would have to use accrual method to match Canadian tax or they will pay twice. Workable but more filing headaches. I think it virtually guarantees having to file U.S tax returns for my children from day 1.

What about me ? If U.S govt interest is non-taxable to a non-resident non-usc, I would just report interest income to Canada year over year and and have no U.S (or Canadian) obligation when I redeem the bond? If that's the case, it seems better to just put them in my name and redeem them when my children need the money.

I wish the bonds could be treated under "cash basis" in Canada too. Unless I've missed something, you don't actually receive anything until you redeem the bond, so you have to put up outside cash to pay taxes under the "accrual" method.

rsargant · Post by **rsargant** » Sat Oct 08, 2011 11:47 pm

Oh... I should probably clarify that by "better", I mean "simpler".

Cost wise, it surely must be better to have them in my children's name and taxed at their rates instead of mine (assuming I avoid all that kiddie tax mess).

nelsona · Post by **nelsona** » Sun Oct 09, 2011 12:42 am

Canada does not permit the acrual method. Moreover, putting it in their name is deemed taxable in your name.

rsargant · Post by **rsargant** » Sun Oct 09, 2011 9:33 am

Thnx. One more reason to just put them in my name in the first place.

Am I correct about how the taxes would function under my name? Report & pay year over year to Canada but no U.S tax due ? I would eventually redeem them as a non-resident.

nelsona · Post by **nelsona** » Sun Oct 09, 2011 11:17 am

Again, you are a US citizen, there is no income that is not taxed by IRS for US citizens. So at redemtion, you will owe US tax, reagrdless of where you live.

So, you are best off reporting on accrual basis in US as well, so that you can at least make a treaty re-sourcing claim.

rsargant · Post by **rsargant** » Mon Oct 10, 2011 11:26 pm

I'm actually not a U.S citizen or a permanent resident but my 2 children are. They were born here while we were working on TN & L1 visas. We are all eventually moving back to Canada "permanently" so I was trying to determine if there was any particular reason to hold bonds in my name or theirs.

I think I got it from your earlier info though. If I put them in my name, I owe tax to U.S so long as I'm resident. Once I'm non-resident , it becomes tax-free in the U.S and I start reporting and paying to Canada. Seems simple enough.

Thank you for your help.

nelsona · Post by **nelsona** » Tue Oct 11, 2011 6:50 am

OK, you might not abe a USC, but you should still be filing in US to get the $2000/yr free money, which makes you a US taxpayer.

Just pJust use the accrual method. You should be used to this as a Cdn.

rsargant · Post by **rsargant** » Tue Oct 11, 2011 7:37 pm

OK. Now for a change of topic if you'll bear with me..

I'm still not sure I'll choose to file in U.S after leaving because I plan on opening up RESPs for my kids. However, after looking around the board more it sounds as thought foreign trust reporting requirements for those in a similar situation to me may have gotten more onerous.

If I am NOT filing in U.S after becoming non-resident will there be any year over year trust reporting requirements for the RESPs because the beneficiaries are U.S citizens? I always assumed they wouldn't be a problem since I'm not a USC. At worst, I thought the trust reporting wouldn't kick in until they started drawing from the account .

nelsona · Post by **nelsona** » Tue Oct 11, 2011 7:53 pm

I don't believe they would have to report trust until they take funds from it.

Most USCs have aCdn relative fund the RESP.

TFSAs will be a problem too.

rsargant · Post by **rsargant** » Tue Oct 11, 2011 9:41 pm

Thanks. That is good news.

It doesn't really seem worth it to me to give up tax deferred RESP saving and tax free TFSA saving just to claim the child tax credit (although I see how that would be advantageous for some). I think I'm better off if I either fall off the IRS radar completely or file as non resident if I must.

nelsona · Post by **nelsona** » Wed Oct 12, 2011 8:29 am

I think TFSAs have been over-hyped.

As I said, there is a way around RESP problem.

In any event, it does come down to a dollars issue.