Canadian resident taxpayers with Children attending University or College in the United States (or abroad) or attending a program themselves, should be aware of the following annual forms that should be obtained and / or filed by their post secondary student child during his or her time at school in the United States:
1. Tuition Credits in Canada – If the student is attending a University located on the CRA “List of Prescribed Universities Outside Canada”, the Tuition likely is eligible for the Tuition Credit (and corresponding transfer to Mom or Dad). It is important to note that the local reporting form for Tuition (e.g. US form 1098-T) is NOT acceptable as support for the tuition credit for Canadian Tax Purposes. Rather, CRA form T11A should be completed by the administrator at the institution the student attends. Of course, if the institution has never been asked for this form in the past, there may be some “educating” of the “Educational Institution” required. For this purpose, CRA has created “RC190 – Information for Educational Institutions Outside Canada”.
Is it worth the trouble of obtaining the form and trying to convince your teenager do some minor administrative work while on campus? We believe so!!! The $5000 annual tuition credit transfer can save a parent anywhere between $1,000 to $1500 in tax each year and the remaining carry forward can save your child significant tax in the future (once they are, of course, gainfully employed!!!). This form should be requested from the Institution in January or February each year to ensure received prior to the tax filing deadline in Canada.
2. US Tax Filing Obligations – if the student has any form of taxable income (i.e. employment income in US, taxable scholarship from US university) it is likely he/she will need to file an IRS Form 1040NR as the student is likely considered a non-resident of the United States (based on the visa they have obtained and they are filing IRS Form 8843 annually – see point “3” below ). Note, if the student doesn’t have a US Social Security Number (unlikely if they are working), they may require a US Individual Tax ID Number (ITIN) which can be applied for with the filing of a US tax return accompanied by IRS Form W7.
3. US Residency for Tax Purposes – If you are not a Green card holder or a US Citizen, US tax residency is based on a test called the substantial presence test (which involves the counting of days in the US). Most students should avoid being considered a resident of the US for purposes of the Internal Revenue Code (for a variety of reasons not discussed here). To ensure this is the case, the student should file form 8843 annually to declare EXEMPT days for purposes of the US substantial residence test. This exemption is generally available for 5 years while the student is on a F, J, M or Q visa.
Planning for future US residents.
If you or your child are currently Canadian tax residents, and you are attending school in the US, there may be the possibility (or the interest) of finding and obtaining work in the US. If this is the case, consideration should be given with regard to planning for this event (i.e. becoming a US tax resident). For example, if your child is a shareholder in a private Canadian company or if your child is a beneficiary of a family trust or RESP, you may want to consider this impact on his/her US tax situation and the disclosure required in the US tax returns and plan well in advance.