RESP's and possible tax implications for dual citizen child

Frankd1 · Post by **Frankd1** » Thu Sep 06, 2012 1:22 pm

I have a question regarding RESP's and my children who are dual US/CAN citizens....

My wife is a US citizen and PR of Canada, I am a Canadian Citizen ONLY, and our 2 kids are dual citizens (born in Canada but automatic US citizens through my wife), we all live in Canada with income only from Canada.

We are considering RESP's for the kids. Because my wife is a US citizen she stays aways from TFSA's, mutual funds and no RESP's in her name etc. She only has a spousal RRSP and joint checking and savings accounts with me. These are all properly documented on their respective forms and timely filed. We like to keep it simple!

If I go through with the RESP it will be in my name only, however, I wasn't sure if there would be any issues or complications for our kids because of their US Citizenship? Is it advised to stay away from the RESP all together due to the childrens US Citizenship and find another means to save for their education or, is this something that would be ok to pursue - of course keeping it in my name only...

nelsona · Post by **nelsona** » Thu Sep 06, 2012 2:36 pm

Right now, the way you are handling it is fine (assuming you never file a 1040 jointly with your wife).

The kids will report the income when they use it, in both canada and US, with little tax if any due in either country.

Be aware however, that there are rumblings about making all accounts held by spouses of US persons subject to the same reporting (not taxation) as if they were held by the US individual.

This hasn't happned yet, but could in the future.

Of course ahould you ever move to US, you will need to do something like roll the RESP to a grandparent if that is possible.

nanic · Post by **nanic** » Fri Sep 07, 2012 9:51 am

Are you sure you children are US citizen. They are automatic US citizen if both parents are US citizen or if they are born in the US. If they are born in Canada and only one parent is a US citizen, then there are special conditions. I would check with the State Department.

nelsona · Post by **nelsona** » Fri Sep 07, 2012 11:51 am

Nanic is correct, but no need to check with state dept: US citizen must have lived 5 years in US with 2 years after age 14.

Best to get passport for them (i'm sure you already have), as they are supposed to use this when crossing into US.

Frankd1 · Post by **Frankd1** » Sat Sep 08, 2012 11:21 am

Thanks for the info nelson!

At this point in time there are no plans for her to file MFJ or for me to get an ITIN, if we plan to move to the USA in the future then I will plan accordingly for that.

So basically at this point there is no issue with only me holding the RESP and the only tax issue is when the girls are ready to go to college or university, and the funds are withdrawn for that purpose. Then they are taxable for whatever gains there are within the RESP from interest, capital gains etc, as well as whatever increases there are from the government grant portion - the after tax contributions are not taxable as far as I know.
Whatever this taxable income amounts to between the two of them may even be reduced by the basic personal exemption amount as well as tuition tax credits.

Hi nanic, the kids are definitely USC. I sponsored my wife to come to Canada 7 years ago when she was 30 - she lived in the US up to that point so she definitely had the required physical presence in the USA.

Our daughters are 3 years old and almost 4 months old and when they were each 2 months of age we brought them to the US Consulate in Toronto where my wife's citizenship and required physical presence was verified. From there they were issued their US Consulate Report of Birth Abroad certificates, US passports and Social Security numbers. They even have NEXUS now!!
I figured it was best to take of this as soon as possible!

nelsona · Post by **nelsona** » Sat Sep 08, 2012 6:29 pm

Wahtever is taxable in canada will be taxable in US in the child's hands.

The grant portion will be taxable -- only your contributions come out tax-free.

MGeorge · Post by **MGeorge** » Thu Sep 13, 2012 2:25 pm

Hi Frankd1,

Do your children already have US passports and social security numbers?
I would still recommend checking with the state department. I am sure that they are eligible for US citizenship, but it may not necessarily be automatic (ie. they could choose not to exercise it).

My understanding (check with the state department to verify) is that if a child is born outside of the US, US citizenship is only automatic if both parents are US citizens and married to one another.

Best Regards.

nelsona · Post by **nelsona** » Thu Sep 13, 2012 3:17 pm

Frankd1 has done all that -- read his post.

MGeorge · Post by **MGeorge** » Thu Sep 13, 2012 3:21 pm

Aw - sorry - I missed a paragraph from Frankd1.

MIKE2000Z28 · Post by **MIKE2000Z28** » Wed Sep 19, 2012 9:32 am

I'm in the same boat. I'm an American citizen with a Canadian PR married to a Canadian citizen. We just had a baby last year and i have to register her at the consulate and go through the procedures for US citizenship. Nelsona, am i correct in assuming my wife can open an RESP for our daughter who will be dual citizen of Canada and the USA and i don't have to file any paperwork yearly aka 3520. So basically the only reporting is when she actually uses the funds in school?

nelsona · Post by **nelsona** » Wed Sep 19, 2012 11:09 am

Yes, so long as your wife doesn't move to US, or she doesn't elect to file jointly with you.

That is how it stands right now. Eventually, I'm quite sure the IRS/Treasury will require US citizens to report the existence of trusts and accounts held by their spouses, but not yet.

You could also have the grandparent open and fund the account

rantaya · Post by **rantaya** » Wed Jun 05, 2013 11:24 am

I am in the exact same position as Frankd1 with regard to the beneficiary of the RESP being a dual citizen child and the owner of the RESP being my Canadian citizen spouse. Question: Does the child beneficiary need to fill out any paperwork prior to the funds being withdrawn, example being an FBAR or the form for reporing the existence of a trust?

nelsona · Post by **nelsona** » Wed Jun 05, 2013 3:31 pm

No. RESPs remain the with the owner until the child uses the money.

rantaya · Post by **rantaya** » Thu Jun 06, 2013 5:48 pm

In regard to the RESP again, I am confused when I read the language used in the instructions for the 3520 and they give the definition of a "US beneficiary". It makes me wonder if a US citizen beneficiary really does have to file this and 3520A? Another area in the instrucitons says "two US beneficiaries of the same foreign trust may fild a joint 3520". So two times the words US benefiiciary comes up. Only questioning because I also happened to talk to someone on the international tax team at a large accounting firm and they said to file 3520 and 3520A "just to be safe". Then he said to also fiile an FBAR once it hits 10K. My child doesn't even file any tax returns yet and the 3520 says it is to be submitted with your 1040.

I also spoke to another Canada/US tax person at another accounting firm last year about the RESP just very briefly and she said for my US beneficiary child to file an FBAR once the account reached 10K? I started questioning that this year however, and found this forum. :) Thanks for all your help Nelsona! There's a lot of conflicting information out there!

nelsona · Post by **nelsona** » Fri Jun 07, 2013 8:23 am

FBAR: your child neither has signing authority nor is considered a joint owner of this account, so I'm unsure why FBAR would apply here.

It has always been the advice of this forum, that a USC parent with a USC child, should have the RESP OWNED by his non-USC spouse, or by another non-USC relative, for the very reason of (a) no one having to do 3520, and (b) no one having to report the annual accruing income to IRS until the child takes the money.

I have heard nothing to cahnge this.

3520 is a return unto itself, it CAN be submitted with 1040, but when it MUST be submitted, it can be done without regard for 1040.

Serbinski Accounting Firms

RESP's and possible tax implications for dual citizen child

RESP's and possible tax implications for dual citizen child

A bit off topic