US/CAN dual residing in Canada - can i contribute to 529?

lanman2000 · Post by **lanman2000** » Wed Jul 29, 2009 8:54 am

I lived in the US for many years and have a 529 account set up in Utah for my son's education. While I am now residing in Canada can I still contribute to the 529? Will Canada treat it as taxable? Will the non-taxable in the US still be in place while I am residing in Canada?

Any help is much appreciated!

nelsona · Post by **nelsona** » Wed Jul 29, 2009 9:39 am

Your 529 plan is taxable in canada right now, so, yes, any internal income it now genrates is taxable in canada, any future income it generates is taxable so long as you live in cabada, and no contributions made are considered tax deductible in canada.

lanman2000 · Post by **lanman2000** » Wed Jul 29, 2009 10:50 am

so i should not contribute to it anymore and just fund a tfsa up here instead?

are there any other planning strategies i should be aware of to avoid taxation on that 529 now that i'm up here?

nelsona · Post by **nelsona** » Wed Jul 29, 2009 10:58 am

Your 529 is taxable in canada on a yeatly basis, on the internal income it generates.

You can move the investments into vehicles that do not produce much yearly income, but eventually tax will be owed -- either when they are cashed in, or when you move back to US.

lanman2000 · Post by **lanman2000** » Wed Jul 29, 2009 11:02 am

the 529 is invested in a portfolio of diversified funds. They increase and decrease as the market ebbs and flows but I don't think they are generating "income" per se.

Would yield/dividend be considered income (yes its auto reinvested)?

Would increases in the value of the investments be considered taxable? I don't plan on realizing any gains/losses for at least the next 15 years...

nelsona · Post by **nelsona** » Wed Jul 29, 2009 11:20 am

As anyone with a non-sheltered mutual knows, any distributions made by the fund, even if reinvested, are taxable in that year.

Even in terrible years like 2008, when funds dropped like a rock, most distributed some cap gains for the year, and these would be taxable, as would any interest and dividends paid out (wether or not reinvested).

Othe rthan that, only realized gains would be taxable (or realized losses eligible for cap losses). Remember that switching from one fund to another triggers realized gain/loss. So will leaving canada for good. (deemed disposition rule)

As to the 'original' value of your funds, remember -- you have read the "CRA newcomers guide -- that your non-sheltered investements (like 529) are considered sold and bought back the day before your arrive in canad (deemed acquisition rule). So the clock started ticking the day you moved to canada.