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  • Writer's pictureDaniel Gray CPA

NRA parent's investment account with adult child USC secondary owner

Canadian NRA parent entirely funds an interest bearing account at TD Bank of Canada. Parent is primary account holder and adult child USC (and for our example, US resident) is secondary account holder, making this a jointly held account.

Under Canadian tax law CRA identifies the party responsible to pay tax on the interest based upon how much each co-holder contributed to the account. Thus only parent pays Canadian tax on said interest income. Bank is often not privy to who funded the account and therefore issues a joint T5 interest income slip reporting 50% to each account holder

(parent and child), leaving up to them to properly allocate on T1 reporting.

Under IRS tax law, division of income on joint accounts is based on local laws - how one's state or Canadian province divides assets. Let's assume in such case that Ontario treats said account and its income as belonging only to the parent who entirely funded the account.

This would mean the child excludes reporting the interest income on 1040. Note that this is NOT a case of parent being a nominee recipient who received an interest tax slip for income actually belonging (in whole or part) to someone else and needing to file 1099-INT to siphon off that interest from him/herself to child.

However, child would need to include this joint account on Form 8938 and FBAR.

The child is an account owner but not an account earner, a very unusual outcome.

Said ensuing unusual result creates a mismatch whereby child would not report the interest income on his 1040 but if meeting the 8938 threshold would need to report the account therein. This outcome exactly matches the tax evasion scenario IRS is attempting to catch in requiring Form 8938 filing and Canadian banks to disclose ownership to IRS in compliance with FATCA, a RED FLAG.


If child meets the 8938 USD$50,000 USA-resident threshold and files 8938, filing options are:

1.      Include the account on Form 8938 and also include the interest income and FTC but checking the math to ensure that no additional tax liability ensues as a result.

2.      Include the account on Form 8938 BUT exclude the interest income, which raises a red flag, but then include a statement explaining the discrepancy of how child is a joint account owner yet not a joint earner of the account’s interest. If IRS pursues, even if it concedes, this will involve hassle.

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