RESP, Prepaid tuition, Education IRA, what to do?

longamkl · Post by **longamkl** » Thu Sep 10, 2009 12:16 pm

Hi,

I followed this board many years ago but haven't lately (twin babies limit internet research time). Nelson, I'm amazed and pleased to see you still here.

I'm trying to decide on the best strategy for saving for college for our new twin babies. We are US residents, Canadian citizens (babies are dual citizens) but are tax residents of Canada and the US. I'm looking for some insight on what might be the best way to proceed.

RESP due to the CRA incentives (funds?)? It sounds like an RESP is problematic from a US tax standpoint for us? ie. if we had Canadian resident grandparents initiate the RESP for us, would that eliminate the reporting requirements?

Thanks in advance for any advice you can provide.

nelsona · Post by **nelsona** » Thu Sep 10, 2009 2:59 pm

I'd have to ask how you are US residents and Cdn tax residents. CRA usually doesn't permit this for very long, and is usually not in your best interest anyway.

Simply put, none of the tax sheltering schemes work in the other countries tax code, so I would recommend none.

A savings plan in the kids name is probably best.

longamkl · Post by **longamkl** » Thu Sep 10, 2009 3:11 pm

Thanks for your response. CRA doesn't have a problem with the situation because we are taxed as residents (hence the "tax residents of both countries" comment previously). We have the worst of both worlds but we can't change the situation (unless we move back to Canada, give up green cards etc. and we are not prepared to do that.)

Since we are taxed as residents in both countries, I assumed that whatever would reduce our tax in the country with the highest tax rate would be beneficial - that's why I assumed an RESP would be best.

If you are saying that none of the savings plans have any benefit at all, then I guess a strategy could be a TFSA for each of the babies and any other non-registered savings account for any additional savings?

nelsona · Post by **nelsona** » Thu Sep 10, 2009 8:29 pm

Actually, CRA does have a problem with that. Generally, the momnet you are considered tax resident of US, they make a determionation as to which country, by treaty, you are resident. this is to get deemed disposition and stop govt payments.

So, what makes you think you reside in both countries? Unless you live in a hotel in US, you are non-resident of canads even if yyou have 10 houses in canada.

A TFSA doesn't help you either. Its taxable in US.

Decide where you live, and then use that countries tax-deferred accounts.

nelsona · Post by **nelsona** » Fri Sep 11, 2009 5:17 am

... and TFSA is for adults only

longamkl · Post by **longamkl** » Fri Sep 11, 2009 8:08 am

They haven't had a problem with it for over four years. I don't know why they would have a problem with it. We are the ideal case for them. All the tax revenue, little to no service expense required. We don't even use health services even though we are obviously helping to fund them.

It is a contractual requirement of the business we own and operate that we be tax residents. Serbinski has reviewed the contracts and agrees with the determination.

We are tax residents of both countries. We don't receive any government payments so I don't know what you are talking about there.

I didn't know that a TFSA is for adults only.

Even if this situation is not typical, there must be some solution that could still make the best of bad situation.

longamkl · Post by **longamkl** » Fri Sep 11, 2009 10:04 am

Lastly, any deemed disposition (if it were applicable at all) would have happened over 10 years ago when we moved to the US and ended our Canadian residency. We took care of all those requirements then.

All we've done since then is to add the Canadian tax residency requirements back in.

nelsona · Post by **nelsona** » Sat Sep 12, 2009 6:34 am

So you have a CCPC. CCPCs would be deemed disposed if you were non-residents. That would be nice money for CRA to get their hands on.

And since you are earning all your monry in US, I'm sure with the credits you take on your Cdn return, you aren't paying that much to Canada.

All I will say is that the treaty is designed such that you can only be resident of one country. Just be prepared for that day when canada pushes you out. That is why DNR status was created.

back to topic.

None of the education plans work cross-border. Period. Ant that you start in Canada, require that you file 3520 etc in US, so are not worth it, and are not sheltered.

Having granny set up and fund the RESP is a good plan, but of course does not save you any taxes.

I have always been a believer in setting up ordinary tax-managed investement (low dividends) in their name (or not) and allowing these to grow, rather than tax-sheltered plans which run afoul of either government rules, are restrictive, and costly.

longamkl · Post by **longamkl** » Sat Sep 12, 2009 7:09 am

Thanks for the response. You are right about the CCPC (we didn't have it when we left Canada so no deemed disposition then). We became Canadian tax residents again (by moving there briefly) and then acquired the CCPC.

We earn our money in Canada and the foreign tax credits we take in the US usually come close to offsetting any US tax.

We've been doing DRIP's for years (in the hopes of having children). So you think that's really the best way to go?

The advantage of having granny fund the RESP is (just) the reduction in reporting requirements for Mom and Dad?

Thanks again.

nelsona · Post by **nelsona** » Sat Sep 12, 2009 3:13 pm

Yes to both your Q's.

Be careful that CRA doesn't deem you!

And do you have a lot of trouble with the US reporting on your corporation. many US citizens in canada get into to trouble for not correctly filing their US corporate obligations.

I guess you now see that a CCPC is more troble that it was worth.