Tax advantage for Specialized schooling for children on 1120

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mpanjwan
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Tax advantage for Specialized schooling for children on 1120

Post by mpanjwan »

I am a US resident with family living in Canada (Wife and two children).

Can tuition which we pay for our children for specialized schooling related to specific learning difficulties (reason why we made the move) be used towards itemized deductions from Yearly Income tax return in USA?

Thank you
MP
ND
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Post by ND »

Whether or not technically correct, some USC Cdn residents deduct as itemized charitable donations the tuition they pay to private Cdn schools that qualify as charitable organizations and who issue Cdn donation slips to parents. Then they file 8833 to disclose a treaty position. Now, this helps only if you have Cdn source income so that you deduct against it these Cdn donations. If you're in the US and all your income is US source, won't help you. Even for those resident here, IRS could argue back to focus on the nature of the donation (tuition) and not the recipient (Cdn qualified charity) bc the former is NOT deductible, oly the latter would be. That's the conundrum created by paying Cdn schools and receiving a donation receipt. It's tuition, which in of itself isn't deductible on a 1040 but under the treaty, donations made to qualified Cdn institutions need be respected. If deduction is claimed, it has the lopsided effect of USC abroad getting preferential treatment over USC USA residents.
nelsona
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Post by nelsona »

For a Cdn charitable donation to be eligible for consideration in US under the treaty, it also must meet Cdn standards for charitable gifts.

Cdn charities are not allowed to issue a donation receipt for tuition, they can in some cases issue a receipt for payments made in excess of normal operating expenses. Our poster has not indicated that he is making a donation, but simply paying tuition.

Cdn non-profits and religious schools were put on notice by CRA in mid -00's to be careful in this area (although the rules had been in place for decades), so I would go with what the organization does. If they issue you a donation receipt (which CANNOT include tuition), then you can use this as a donation in US (subject to reporting sufficient Cdn income).

http://www.canadiancharitylaw.ca/blog/c ... ide_a_rece
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Post by ND »

The issue raised at hand is whether or not it can qualify under the treaty for a US tax deduction given that it qualifies for a T1 deduction. There are two ways to view this and each leads to an opposite conclusion.

For Cdn treatment if a religious school see http://www.cra-arc.gc.ca/E/pub/tp/ic75- ... -23-e.html
nelsona
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Post by nelsona »

The url I provided had both the IC as well as explanation, and applies to both religious and non-religious, non-profit schooling.

The treaty guarantees equal treatment of charitable deduction in both countries (with income restrictions). The issue is that tuition (which does not have the same treaty guarantee) is NOT a charitable donation in Canada.

I believe you are under the impression that Canada somehow treaty tuition/donations differently than US. I do not believe it does. Canada, like US does not allow tuition payments to be treated as donations, just like in US.
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Post by ND »

For religious private schools Canada treats tuition/donations differently than US.
nelsona
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Post by nelsona »

How so?
Neither CRA nor IRS treat tuition as gift, whether to religious school or not-for-profit.
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Post by nelsona »

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Post by ND »

nelsona - your link shows that tuition to religious school not deductible to IRS and not considered a donation. The link I posted above http://www.cra-arc.gc.ca/E/pub/tp/ic75- ... -23-e.html shows that CRA allows a donation receipt. It says: two exceptions to the rule where a portion or all of an amount paid to a school, other than a post-secondary institution or a designated educational institution may be considered as a donation. The two types of such schools which give rise to these special circumstances are: (a) those which teach exclusively religion (b) those which operate in a dual capacity providing both secular (academic) and religious education.
nelsona
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Post by nelsona »

OK.

So, as I've been saying all along, in no circumstances is non-post-secondary tuition a tax deduction, which was the original question at hand.

But as you point out PAYMENTS made to religious schools (which has nothing to do with the original post, in case our OP is still even paying attention) even those that are not for tuition only, CRA can allow a portion to be tax deductible, but IRS will not.

To your point about IRS "donations made to qualified Cdn institutions need be respected", this is true only if the organization could qualify to receive deductible contributions if it were in the US. Since, apparently, religious schools in US are NOT permitted to receive deductible contributions (otherwise they would simply have two pots, one for tuition and one for gifts, which IRS would still not accept), I could see IRS denying such clams for USCs living in Canada and issued tax slip by a religious school.
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