Have a student client who is at Standford University on a full scholarship from June 2023 until June of this year. They earned $75,000 in income while there. How do I claim residency on the return?
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Depending on his residency status in California I would expect the student may have filed or is required to file a 1040NR or a 1040NR-EZ (nonresident alien return) as well as a 540NR (California Nonresident or part year tax return).
Those returns will establish his US based income as well as the Federal and State tax liability for his residency earnings.
On his Canadian return (assuming still a Canadian resident for tax purposes) he would report the Canadian equivalent of the US earnings as foreign employment income, and claim a foreign tax credit for taxes actually levied by the federal and state authorities. The worksheet in TaxCycle where this is entered id called “Foreign Income”.
The CRA will likely want proof of the US taxes actually paid, so you may as well have your student request transcripts from both the IRS and the State of California Franchise Tax Board.
Great summary from snoplowguy, I would add that if CRA requests proof they will want to see the actual US tax return rather than the slips. CRA wants to know what tax he actually paid not what was deducted at source.
The CRA won’t generally even accept the US tax return(s). They want the “transcripts” for both federal and state as proof of foreign tax paid, which is akin to our Notice of Assessment. You normally have to request transcripts though… as they are not sent automatically like a Notice of Assessment.
OK, thank you, I will make sure that I get the transcript. They are having someone down there preparing the US return. On the Canadian return, is the residence still Canadian? They were in the states from June 2023 until this June.
Residency is determined on a case by case basis. Filing of the NR73 shortly after leaving is the only positive confirmation. However, if the client is in the US on a F-1 or M-1 temporary student visa these are both seen as temporary. It’s more likely the student is still considered to be a factual resident of Canada.
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Not relevant to the determination of residency, but a couple of other forms could be handy for the student.
TL11A - Tuition Receipt for Educational Institution outside of Canada (CRA form)
1098-T - Tuition Statement (detailing tuition fees paid as well as scholarships received). IRS Form.
1040/1040NR
A scholarship is generally an amount paid or allowed to a student at an educational institution for the purpose of study. A fellowship grant is generally an amount paid or allowed to an individual for the purpose of study or research. Other types of grants include need-based grants (such as Pell Grants) and Fulbright grants.
Tax-free
If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You’re a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.
Taxable
You must include in gross income:
- Amounts used for incidental expenses, such as room and board, travel, and optional equipment.
- Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. However, you don’t need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college.
Line 13010 – Taxable scholarships, fellowships, bursaries, and artists’ project grants
Report amounts that you received as a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by you (other than a prescribed prize) that were not received in connection with your employment or in the course of business, to the extent that these amounts are more than your scholarship exemption. If you received a research grant, see Line 10400 – Other employment income.
Elementary and secondary school scholarships and bursaries are not taxable.
A post-secondary program that consists mainly of research is eligible for the scholarship exemption, only if it leads to a college or CEGEP diploma, or a bachelor, masters, or doctoral degree (or an equivalent degree). Post-doctoral fellowships are taxable.
Scholarship exemption
To claim a scholarship exemption, you must be enrolled in an educational program in which you are a qualifying student in 2022, 2023 or 2024.
Full-time enrolment
Post-secondary school scholarships, fellowships, and bursaries are not taxable if you received them in 2023 for your enrolment in a program for which you are considered a full-time qualifying student for 2022, 2023 or 2024.
The scholarship exemption will be limited to the extent that the award was intended to support the student’s enrolment in the program. To determine what portion of your award was intended to support your enrolment, you should consider such factors as:
- the duration of the program
- any terms and conditions that apply to the award
- the period for which support is intended to be provided by the award
Part-time enrolment
If you have received a scholarship, fellowship, or bursary related to a part-time program for which you are a part-time qualifying student for 2022, 2023, or 2024, the scholarship exemption is limited to the tuition paid plus the costs of program-related materials.
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