What happens to your RESP if you become a non-resident of Canada?

(Shutterstock)

Q: We are moving overseas to New Zealand. I’m wondering what the implications are for our son’s RESP if we become non-residents? Can we continue to contribute? Will we lose what benefits are already in the account? —Cara A: A subscriber is the person who opens and manages a Registered Education Savings Plan (RESP). They can be a non-resident, contributions can still be made, and grants received, if the beneficiary is still a resident. That may not be the case here, Cara, assuming your son is moving with you. The residency of a beneficiary is more important for a RESP*. When a beneficiary becomes a non-resident, it does not impact the existing government grants like the Canada Education Savings Grant (CESG) or other means-tested federal or provincial grants already in the account. It does negate the eligibility for that beneficiary to receive future grants, and contributions cannot be made to a RESP for a non-resident beneficiary. Ask a Planner: Leave your question for Jason Heath » So, your existing RESP account can be maintained while you’re a non-resident, Cara. It will remain tax-sheltered in Canada while you have the account. However, New Zealand, and many other countries, tax residents on their worldwide income. New Zealand does have transitional resident rules exempting foreign source income from tax for 48 months after becoming resident and your family may qualify. It is important to get proper tax advice in New Zealand, as your RESP income and gains may be taxable to you or to your son there, as well as many other foreign countries.

RELATED: ETF or index mutual fund—which is best for an RESP?

If you take withdrawals from the RESP while your son is a non-resident of Canada, any government grants are repaid directly to the government. Assuming your son is attending an eligible post-secondary institution at that time, which can include a foreign college, university, or similar establishment, your principal withdrawals (original contributions) are withdrawn tax-free. The income and growth over and above your principal are subject to Canadian withholding tax of 15% if your son is a resident of New Zealand. If he’s a resident of another country that doesn’t have a tax treaty with Canada, the withholding tax may be 25%. Your son may or may not receive credit for tax withheld in Canada on a foreign tax return depending where he resides at that time, Cara. New Zealand allows residents to claim foreign tax credits, but there may be a mismatch of what is considered income for Canadian withholding tax purposes and what is considered income for New Zealand tax purposes. You will need local tax advice. If your son returns to Canada, even if you don’t, that changes things. The RESP withdrawals won’t trigger repayment of the CESG or other grants. The CESG, income, and gains exceeding your principal contributions will be taxable to your son upon taking an eligible withdrawal, but like most students, he will likely pay little to no tax on the income.

Compare the Best Savings Accounts in Canada* >

It is important to note that a child can be considered a resident of Canada, even though they are studying at a foreign school. This could be the case, Cara, if your family returned to Canada, but your son studied at a foreign university, returning home each summer. As a non-resident of Canada, you may find that some Canadian financial institutions will not let you maintain your Canadian investment accounts. If you own Canadian mutual funds in the RESP, you may be allowed to continue to hold them, but not to buy or switch into new ones. So, as a non-resident, you may be limited in the management of your investments or even where you can have accounts. In summary, Cara, leaving Canada does not necessarily negate the benefit of a RESP account. It means your contributions must stop if the beneficiary is a non-resident and may result in repayment of grants or withholding tax if withdrawals are taken while a beneficiary is non-resident. Particularly if your beneficiary will return to Canada for their education, a RESP will function in much the same way it was originally intended. You may just need to look for other ways to save for a child’s education while they are non-residents. Ask a Planner: Leave your question for Jason Heath » Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

MORE ABOUT RESPS:

What does the * mean?

Affiliate (monetized) links can sometimes result in a payment to MoneySense (owned by Ratehub Inc.), which helps our website stay free to our users. If a link has an asterisk (*) or is labelled as “Featured,” it is an affiliate link. If a link is labelled as “Sponsored,” it is a paid placement, which may or may not have an affiliate link. Our editorial content will never be influenced by these links. We are committed to looking at all available products in the market. Where a product ranks in our article, and whether or not it’s included in the first place, is never driven by compensation. For more details, read our MoneySense Monetization policy.

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

Linkedin Twitter Facebook Website

Comments Cancel reply

Laurel Slaney says:

August 18, 2020 at 6:18 pm

As a Canadian citizen can I open an RESP for a grandchild who is a non resident in Canada?

Reply
1. Samuel Kavanagh says:
  
  August 31, 2020 at 9:48 am
  
  Response from the MoneySense editorial team:
  
  Hello Laurel, thank you for asking.
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
  Reply
Angelica S. says:

October 13, 2020 at 11:20 am

My husband is canadian but has long been a non-resident. His family moved out of Canada while he was still a minor. We have 2 kids who are canadians too but also non-resident (we are based in Singapore). Is there any way my husband can contribute to any funds while based overseas that we can use for future college funds (or any investment funds) for our children?

Reply
1. MoneySense Editors says:
  
  November 12, 2020 at 11:21 am
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
  Reply
Sumit Beri says:

November 3, 2020 at 8:09 pm

Hi,

I am on work permit and my son is on study permit in Canada and permanent residency is in process. I have filed income tax return in the year 2018 and 2019.

CRA has provided me with TFSA and RRSP limits to invest in.

Please advise if I can invest in RESP for my 8 year old son as the prerequisite is the tax resident of Canada and I think I am but doubtful about the same.

WOuld you please clarify or give some insights.

Reply
1. MoneySense Editors says:
  
  November 12, 2020 at 11:02 am
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
  Reply
Fons van Geelen says:

November 15, 2021 at 12:58 pm

Hi, my kids have dual citizenship and we are living in Canada. We have an RESP plan and my daughter is thinking of studying in the Netherlands in two years. We want to go back to the Netherlands with her and so we will not be Canadian Citizens by then. If we use the RESP to pay for her first year of university before we emigrate back, do we have to pay anything back or taxes??

Reply
1. MoneySense Editors says:
  
  December 9, 2021 at 9:41 am
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
  
  Reply
Priya Iyer says:

March 6, 2023 at 1:16 pm

Question: We are Canadian citizen moved to US, so currently non-residents. While moving back to the US we withdrew our funds from RESP account. However, the account was not closed. Now while filing tax in the US for 2023 our tax consultant mentioned we need to report it and we are being charged a hefty sum for the process. How can we circumvent this issue and close the account?

Reply
1. MoneySense Editors says:
  
  March 10, 2023 at 2:24 pm
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
  Reply