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RESPs and the U.S. residency trap

by | Mar 26, 2014 | SELF-PUBLISHED

Are Canadian kids living in the U.S. eligible for RESPs?

While relatives such as grandparents are eager to contribute to their grandkids’ education through a Registered Education Savings Plan, is it even possible if the student lives in the U.S. even though he or she might be a Canadian citizen? And if so, would they have to attend university or college in Canada to benefit from the RESPs. The answer is a little complicated, and much depends on the student’s status as a Canadian resident.

Residency rules are clear

The rules for eligibility for the Registered Education Savings Plans are pretty clear. According to the Canada Revenue Agency, “…you can designate an individual as a beneficiary under the RESP only if the individual’s social insurance number (SIN) is given to the promoter before the designation is made; and the individual is a resident of Canada when the designation is made.”

Once an RESP is set up, and the student goes on to enroll in a qualifying educational program at a post-secondary educational institution, Educational Assistance Payments (EAPs) will be paid towards the student’s tuition from the RESP. For Canadian residents, the payments consist of funds contributed to the RESP and earnings on those funds, the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB) for eligible students, and any provincial savings programs the student may be eligible for.

A university or college outside Canada qualifies as a post-secondary institution eligible for EAPs, provided the student has been enrolled full-time in a course of not less than three consecutive weeks and remains a resident of Canada.

Grants available for Canadian residents

Note, however, that a student beneficiary must be a resident of Canada in order to receive the Canada Education Savings Grant or Canada Learning Bond as part of the EAP. Residency requirements may also apply for provincial grants and incentives.

Residency requirements

Residency status is a bit trickier. Even if you are a Canadian citizen, Canada Revenue Agency rules state that you are a non-resident for tax purposes if you:

  • Normally, customarily, or routinely live in another country and are not considered a resident of Canada; or
  • Do not have significant residential ties in Canada; and you live outside Canada throughout the tax year; or you stay in Canada for less than 183 days in the tax year.

In the case of grandparents looking to set up RESPs for grandkids living in the U.S., it appears they’re out of luck. To qualify for RESP benefits, the grandchildren would have to be residents of Canada at the time the RESP is set up, and they would need to have Canadian Social Insurance Numbers. They would also have to be residents of Canada to qualify for the CESG and be eligible for other grants and incentives. And they would have to remain residents of Canada to receive the full EAPs for attending a post-secondary school outside Canada.

Part of overall financial planning

RESPs in general are a good tax-deferral vehicle and should be used in conjunction with an overall family financial plan. Consult with your financial advisor when setting up RESPs to make sure you know what’s allowed and what isn’t.

© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.

© 2023 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.

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