# Canada Child Tax Benefit - FEIE?



## gopostal

Hi! I've searched all over the internet, hoping someone asked the same question directly. I've seen some stuff that's similar, but it still seems fuzzy. If I just missed it somewhere else, my apologies and please direct me there. Anyway, here goes:

QUESTION:
Is the Canada Child Tax Benefit and Universal Child Care Benefit considered earned income, and subject to the Foreign Earned Income Exclusion?

SITUATION:
I am Canadian only. My spouse is a dual citizen, born in the United States to Canadian parents while they were living there temporarily. My spouse stays at home with our 4 children and has zero employment income. The Canadian government gives us approximately $11,000/year for CCTB and just over $4,000/yr in UCCB. We also have a jointly held RESP that, with government cash, "gains" about $3,000/yr. No US tax form has ever been filed, so we're new to this.

So, has anyone here successfully filed the FEIE for money "earned" from the Canadian government for the "service" of raising children? If not, what is this "income" reported as?

By the way, is it just me or does reporting CCTB amounts seem like it's based on the honour system?


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## Bevdeforges

Your spouse is the only one with any potential US tax filing obligation, and given that she has no earned income (only salary and salary-like income count for this), it appears she has no filing obligation. There is some real debate over whether government benefits from foreign governments are even reportable for US tax purposes when filing from abroad. 

Take a look, for example, at IRS Publication 525, p. 27, where you'll find this:


> Do not include in your income governmental
> benefit payments from a public welfare fund
> based upon need, such as payments due to
> blindness.


To me, that would make your Child benefit non-reportable.
Cheers,
Bev


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## maz57

If the facts are as described, this sounds like a classic case of "accidental American". If your spouse only lived in the US for a short time as a child and has never gotten a US passport or Social Security Number its very unlikely the US government is even aware of his/her existence. I see no benefit in them sticking their neck up now at this late date.

With FATCA the risk, of course, is that somehow a financial institution will discover your spouse's "US-ness" and throw a wrench into what until now has been a textbook case of "flying under the radar". But that is only a theoretical possibility, and an unlikely one at that. For now everyone in the whole family is a Canadian living in Canada.

It might be prudent going forward to make a few adjustments to financial account ownership just in case but no income=no filing obligation. As a wise person once said, "never tell them anything they don't already know" and the US government knows nothing for the present. I can tell you from personal experience you don't want to open that can of worms!


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## Nononymous

Adding a quick contribution here:

It sounds like your spouse has no income tax filing obligation with the IRS because she earns no income. (The FEIE only applies to earned income, from employment.) I would take the position that the child benefits are not in any way her income. So no income tax reporting at present. (And yes, it's an honour system, the US won't know about this money, and personally I wouldn't be telling them.)

When did your spouse live in the US? If more than five years, with two over the age of fourteen, then she would have passed on US citizenship to the children. If not, then they are lucky. 

For FBAR reporting, if you ensure that there is never more than $10k total in any accounts with her name on them, joint or otherwise, she has no FBAR reporting requirement. You might want to arrange your affairs such that she never crosses that threshold - which may require a certain amount of spousal trust! Ensure that her name is not on any RESPs (assuming that your kids are not US citizens) and that problem goes away. 

FATCA may be an issue due to her US birthplace. Banks may begin to require citizenship information, and may ultimately want a US Social Security Number from her. RRSPs and other registered accounts are not reportable under FATCA, but that doesn't prevent banks from wanting that information, as I'm beginning to discover.

Flying under the radar. If your spouse never lived in the US as an adult, never worked or studied in the US, doesn't have an SSN, then she likely doesn't exist as far as they're concerned. She might have RRSPs in excess of $10k that should be reported by her under FBAR, but will not be reported by the banks under FATCA. It's her decision whether to comply, and by so doing make her existence known to the US. Personally I would not, but that's her decision. 

Travel to the US. Does your spouse have a US passport? If not, she will probably need one soon, as the US is getting stickier about dual citizens crossing the border with Canadian passports. A US passport is legally required of US citizens, though this rule has been widely ignored in the past. A US birthplace is, alas, a bit of a giveaway. She can apply for a US passport without an SSN, as long as she truthfully does not have one. There might be questions about the childrens' citizenship if you travel together, but if she knows the rule about time spent in the US, then it's not an issue.


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## Nononymous

A shorter version, after having read your other threads:

I don't think your spouse needs to do anything right now. No income tax reporting. No legal requirement to file FBAR reports if she doesn't have RRSPs, or if account totals with her name on them didn't exceed $10k in a given year. (And if they did once or twice, you need to ask yourself whether it's worth reporting that and putting her on the radar.) Going forward, keep the joint account balances under the FBAR threshold and get her name off the RESPs and you should be fine. (Down the road there might be a few extra hurdles opening an RRSP in her name because of the US birthplace, but that doesn't mean anything will be reported to the US as those accounts are exempt under FATCA.) 

If at some point you wanted to take advantage of the citizenship by moving to the US, all bets are off, she'd need to become fully compliant.


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## Nononymous

Even shorter version.

She may in fact be fully compliant today, despite having done nothing over the years. (If she has little or no income, and no accounts over the FBAR threshold, then there's no requirement to report.) If so, no need to file anything, or hire an accountant - it's completely in order. Arrange your affairs to preserve this state going forward, and she can quite legally stay off the US radar.


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## gopostal

Thanks big time for all your help here. 

To give a fuller picture, here are some extra complicating factors:

1. When we first married in 2006, I became a student for 3 years in USA where we lived. I had an F-1, she had to get her US Passport, and got SSN for in case she wanted to work. It never happened. So she hasn't exactly been under the radar. At least she doesn't meet residency requirements for our children to qualify for citizenship!

2. She is joint registered on over $24,000 worth of RESP that we've invested (with the gov grants).

3. She has about $4,000 in RRSP (though, you can imagine, it doesn't add up to a whole lot of income)

4. We started the process, and already filed an FBAR for 2013 earlier this year so it wouldn't be late. Got her 2013 tax pushed back to October so the IRS is expecting it.

5. I Started looking into taking her name off the RESP before the end of 2014 so it doesn't complicate future tax years. Our financial planner is really helpful to make it happen, but when I heard it would produce a PFIC, I started looking that up and, well, yikes. So that's a whole other can of worms. 

Long story short, we're in it deep enough that we need to go through the the Streamlined and get her above board. I'm just trying to make it so that we don't pay any taxes. It looks like, from what everyone has been saying here, she won't really pay any taxes since she doesn't have any income, which means my focus is shifting over a little bit now to make sure the PFIC doesn't rook us.


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## Nononymous

Why would you have any issues with the RESP? Take her name off it and you're done. If the US doesn't know about it now, they never will. If you reported the RESP on an FBAR, all bets are off.

She's on the radar in terms of having an SSN, but there are millions of Americans with SSNs who don't file tax returns because they don't make enough money. She's one of them.

I can't imagine that you'd pay any tax in getting caught up.


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## BBCWatcher

It's too bad those children aren't U.S. citizens, and it's too bad she doesn't have a modest amount of earned income. If she did, each child is worth up to $1000 in payments from the U.S. government -- the Additional Child Tax Credit -- so up to another US$4000.

I'm also skeptical that she has a filing obligation. It would depend on whether CCTB and/or UCCB are considered forms of U.S. taxable income. I doubt they are. If I'm right (and if others are right), she doesn't actually have a U.S. income tax filing _obligation_.


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## Nononymous

Given the recent price increase, saving those additional child tax credits until the kids are 18 might possibly be enough to pay for their renunciation!


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## jbr439

BBCWatcher said:


> ...
> 
> I'm also skeptical that she has a filing obligation. It would depend on whether CCTB and/or UCCB are considered forms of U.S. taxable income. I doubt they are. If I'm right (and if others are right), she doesn't actually have a U.S. income tax filing _obligation_.


Technically, she at least has a form 8891 filing requirement for the RRSP, no?


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## jbr439

She may also have, strictly speaking, past filing obligations for forms 3520 and 3520A as RESPs are considered to be "foreign trusts" (same for TFSAs and RDSPs).


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## Bevdeforges

Except for the fact that, if one doesn't have to file a tax return (for insufficient income) then one normally doesn't have to file the FATCA forms that go with the income tax return.
Cheers,
Bev


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## BBCWatcher

I agree with Bev. You don't get to the tax form attachments and schedules (usually) if you don't have a requirement to file in the first place.


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## BBCWatcher

Nononymous said:


> Given the recent price increase, saving those additional child tax credits until the kids are 18 might possibly be enough to pay for their renunciation!


I realize you're making a joke, but in case anybody took the joke seriously, no, that particular math doesn't make sense. A CLN costs the same as about 2 years of ACTC. The free money from the IRS is still the better deal, obviously.

Keep in mind also is your child may feel differently about U.S. citizenship than you do -- as the star of Broadway's Tony Award winning new musical (as a random example), thanks to the quick response she had to her audition. (Thank goodness she had a Social Security number and passport to present at her audition. The casting director wasn't going to wait.)

Anyway, the math works in pure financial terms (with extremely high confidence if you/your child qualify for the ACTC), and it also costs substantial money for an 18+ year old to document his/her U.S. citizenship he/she already has.(*) The _sensible_, rational thing to do is to take the free money from the IRS, keep the child's options open, and let him/her decide whether to buy a CLN at age 18. Set some of the ACTC aside to pay for that CLN if you're concerned about that.

(*) In some cases there are perils/extra hurdles if you don't document the child's citizenship while you're still alive.


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## Bevdeforges

Just to throw a "responsible alternative opinion" into the discussion, there is also the ethical side of claiming refundable benefits from the US when you are, in fact, trying to disentangle yourself from their jurisdiction - whether for the sake of the kids or for your own sake.

It's not always simply about the money.

If you want to make it easy for the kids to claim their US nationality, should they so choose, pull together all the necessary documents and keep them for your children, to be used if and as needed.
Cheers,
Bev


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## maz57

BBCWatcher said:


> I agree with Bev. You don't get to the tax form attachments and schedules (usually) if you don't have a requirement to file in the first place.


So following that logic, does that get a non-filer off the hook for FBAR as well? As I recall the notification about FBAR is at the bottom of one of the 1040 schedules where one is asked about possible foreign accounts.

We have to assume folks are not born with knowledge of FBAR, and if one never has had a filing obligation and never filed a 1040, logically they would never hear about FBAR. (Chances are if their income is so low they don't meet the filing threshold their FBAR account aggregate would never hit the $10,000 threshold but it is possible.) 

I realize FBAR is a totally different filing obligation under different laws, but if one doesn't file 1040 and doesn't know about the tax rules it would be unlikely they would know much about any other rules either.


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## Bevdeforges

Unfortunately, no. The FBAR filing is a separate requirement from that of filing tax returns. I help a friend of mine with her taxes and she doesn't have to file a tax return, but we do file an FBAR for her. And frankly, the account we have to report in her FBAR filing has a hefty balance - but does not produce enough income for her to have to file taxes. To date, neither the IRS nor Treasury has ever questioned this.
Cheers,
Bev


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## CanadianMoose

Bevdeforges said:


> Unfortunately, no. The FBAR filing is a separate requirement from that of filing tax returns. I help a friend of mine with her taxes and she doesn't have to file a tax return, but we do file an FBAR for her. And frankly, the account we have to report in her FBAR filing has a hefty balance - but does not produce enough income for her to have to file taxes. To date, neither the IRS nor Treasury has ever questioned this.
> Cheers,
> Bev


Little off topic and more for my own education on the subject, though what is the threshold on that? As in how much money can a person have over $10,000 to have to file an FBAR and not pay taxes as a maximum? Is there any difference between individual unmarried and married joint tax filing?


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## Bevdeforges

CanadianMoose said:


> Little off topic and more for my own education on the subject, though what is the threshold on that? As in how much money can a person have over $10,000 to have to file an FBAR and not pay taxes as a maximum? Is there any difference between individual unmarried and married joint tax filing?


That's the weird thing - it all depends. In my friend's case, her bank balance was in the mid-six-figures range, but pays a nominal rate of interest (like, a fraction of a percent) so ultimately only added a couple thousand dollars to her "income" that was reportable. As one of the over-65 taxpayers, her filing threshold is particularly high and so the interest income doesn't bring her over the threshold. But, she needs to report the bank balance.

What's more, she lives in a country with one of the more unique US tax treaties. Her bank interest is paid net to her, after the local country income taxes have been taken out. So even if she had to report the interest income, she'd have tax credits so as to owe no US tax on the amounts.

Like they say, it's all a matter of the facts and circumstances of the situation.
Cheers,
Bev


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