US Citizen? Avoid RESPs

U.S.citizens continue to have obligations for U.S. tax purposes even though they may be a Canadian resident for many years.

Canada and the U.S. have worked together over the years to ensure that treatment of RRSPs and RRIFs by each is consistent.  This is not true for all Canadian investments where special rules apply.  For example, problems can arise where a U.S. person holds a Registered Education Savings Plan (RESP).

The main disadvantage is that, unlike RRSPs and RRIFs, U.S. persons cannot elect to defer the taxation of income earned in an RESP. 

The U.S. tax implications for RESPs depend mainly on the residency of the contributing parent and the beneficiary child.

Contributing Parent is a U.S. Citizen or Resident

The income earned within the plan, including Canadian Education Savings Grants, is taxable to the parent for U.S. tax purposes.  There are no income tax consequences upon withdrawal of the funds.  That being said, there is an element of double taxation.  In addition to having to pay tax on the plan income as mentioned above, for Canadian tax purposes the income will generally be taxable in the hands of the child when they go to university or college.

Contributing Parent is Not a U.S. Citizen or Resident but Beneficiary is a U.S. Citizen or Resident

The income earned within the plan is not taxable to any party when earned.  However, if the child is a U.S. citizen or resident, the accumulated income is taxable to the child upon withdrawal of the funds.  A special prescribed tax and interest charge is calculated based on the accumulated income distributed from the plan, which achieves roughly the same result as if the income were taxed as it was earned over the life of the RESP.

Tax Reporting Requirements

Since an RESP is a foreign trust, U.S. persons who invest in them are subject to the U.S. reporting requirements for foreign trusts.  The ability to obtain the tax treatment described above can be jeopardized if the proper U.S. tax reporting forms are not completed.  In certain cases, a portion of the original RESP contributions may be taxable to the beneficiary if the appropriate forms are not filed.

If you are a U.S. citizen considering contributing to an RESP for your child in order to take advantage of the Canadian Education Savings Grant, it may be better for another relative in Canada to set up the RESP.

To find out how U.S. foreign trust tax rules apply in your situation, speak with your accountant. 

Although kidnap insurance is not new, the risks associated with international business and personal travel have raised both awareness and the need for this little known or understood insurance product.

What does it provide?

The product that that I present to clients is arranged by Hunter McCorquodale Inc., and underwritten by certain underwriters at Lloyds and offers:

Crisis Management – In my opinion, the most important benefit of coverage is immediate, priority access to ASI Global, a specialist crisis management team. Evidence suggests that, in situations where the advice of professional crisis management specialists was available, the hostage was released safely in 90% of cases.

In addition to Crisis Management, coverage includes, but is not limited to:

• Ransom payments or loss of ransom in transit
• Fees and expenses for
  • Response consultants
  • Independent negotiators
  • PR consultants
  • Security guards at incident site
  • Travel and accommodation
  • Interpreters
• Post-incident benefits such as
  • Psychiatric, medical and dental care
  • Cosmetic or plastic surgery
  • Rest and rehabilitation

What does it cost?

Here are some examples to give you an idea as to the cost of coverage.

Business executive travels to Panama City monthly, 5 to 7 days per trip in addition to one trip to Columbia. $2 million coverage for 12 months was $2,575.

Two contractors go to Afghanistan and need coverage for 9 weeks. $1 million coverage was $2,450.

Large Canadian resource company, with worldwide operations needs coverage for 20,000 employees. $5 million coverage for 12 months was $49,000.

High net worth Canadian family travels within Canada and the US for vacation. $1 million coverage, 12 month policy is $1,300.

If the idea of Somali pirates, foreign terrorists or South American/Mexican drug cartels is taking the shine off of your travel plans, Kidnap insurance might be the solution for you.