We are very excited to announce that Matt Altro and David Altro were invited to prepare a special for The Globe and Mail, which was published on August 22, 2019. Their article titled “How to Get an ‘A’ in Cross-Border Education Planning” examines and provides insight into the complicated tax implications that arise when investing in a Canadian Registered Education Savings Plan (“RESP”) for both U.S. citizens living in Canada and Canadians moving to the U.S.
To read the article you can see it in part below, or click here to view it on The Globe and Mail’s website.
How to Get an ‘A’ in Cross-Border Education Planning
David Altro and Matt Altro
The Globe and Mail
August 22, 2019
We all want our kids to work hard in school, get good grades and go to university. In order for this to come to fruition someone has to foot the bill for things such as tuition and books. Parents who do their homework discover that the keys to success for education planning are to start early, save consistently and take advantage of tax-sheltered plans such as a registered education savings plan (RESP). Unfortunately, families with cross-border implications, such as having a U.S. citizen in the family or moving to the United States, face numerous cross-border income-tax traps associated with saving for their children’s education.
The RESP offers two key advantages. The first is that the government will match 20 per cent of the first $2,500 contributed to an RESP on an annual basis up to a maximum of $500. The second is that the income within the plan grows tax deferred. When the funds are eventually used for the child’s postsecondary education, the income is taxed in the student’s hands, resulting in little to no tax.
U.S. CITIZENS LIVING IN CANADA
As you may know, U.S. citizens are taxed on their worldwide income regardless of where they reside. This results in U.S. citizens living in Canada having to contend with both the Canadian and the U.S. tax systems. Applying this concept to RESPs, U.S. citizens living in Canada are concerned when they discover the U.S. tax system does not recognize the tax advantages of an RESP. In fact, the Internal Revenue Service (IRS) views RESPs as foreign trusts. […]