Tuition Across the Border: When a US School Qualifies for Canada's Credit, and When a Canadian School Qualifies for the AOTC

Both countries give tax relief for post-secondary tuition, and both extend it to schools in the other country, with conditions. Canada's tuition tax credit covers tuition at a foreign university if the program is full-time, degree-granting, and at least three consecutive weeks, certified by the school on Form TL11A. The US education credits cover tuition at any institution eligible to participate in federal student aid programs, which includes many Canadian universities. The mismatches are in the savings plans: an RESP is a foreign trust to the IRS, and a 529 plan is a taxable account to the CRA.

Full guide: Tuition Across the Border: the TL11A for Canadians at US Schools, the 1098-T for Americans in Canada, and Who Can Claim What

Key takeaways

• Canada's tuition credit: 15% federal (plus provincial where still offered) on eligible tuition; foreign university tuition qualifies if the student is enrolled full-time in a degree program lasting at least three consecutive weeks, certified on Form TL11A. Unused credits carry forward indefinitely or transfer up to $5,000 to a parent, grandparent, or spouse.
• US education credits: the American Opportunity Tax Credit (up to $2,500 per student for four years of undergraduate study, 40% refundable) and the Lifetime Learning Credit (up to $2,000 per return), available for tuition at an eligible educational institution, which includes foreign schools participating in US federal student aid. Many Canadian universities are eligible; the school issues a Form 1098-T or equivalent statement.
• RESP: a Canadian registered plan with government grants; for US purposes, a foreign trust requiring Form 3520 filings, and the grant is taxable to the US subscriber. Educational assistance payments are taxable to the student in Canada; the US taxes the earnings portion.
• 529 plan: a US tax-advantaged plan; for Canadian purposes, a taxable account whose earnings are taxed annually to the Canadian-resident owner with no treaty protection.
• Income limits: the AOTC phases out above $80,000 (single) or $160,000 (joint) of modified AGI; the Canadian credit has no income limit.

Canadian student at a US school

A Canadian resident (or a Canadian parent claiming the transfer) can claim the tuition credit for a US university if the program is full-time, leads to a degree, and lasts at least three consecutive weeks. The school certifies the tuition on Form TL11A; the student claims it on Schedule 11. Tuition paid to a US commuter college for a Canadian resident living near the border qualifies under a separate rule (Form TL11C) without the three-week or degree requirement. Amounts paid in US dollars are converted at the rate on the payment date or the annual average.

The credit is 15% of eligible tuition federally; provinces have mostly eliminated their tuition credits. A student with no tax to absorb the credit carries it forward or transfers up to $5,000 of the federal amount to a supporting relative.

American student at a Canadian school

A US taxpayer (or a parent claiming a dependent) can claim the AOTC or LLC for tuition at a Canadian university that is an eligible educational institution, meaning it participates in the US Department of Education's federal student aid programs. Most large Canadian universities do; the school will provide a statement in lieu of Form 1098-T. The AOTC is worth up to $2,500 per year (100% of the first $2,000 and 25% of the next $2,000 of qualified expenses) for four years of undergraduate study, with $1,000 refundable; the LLC is worth up to $2,000 per return for any post-secondary study. Both phase out with income.

A US citizen living in Canada attending a Canadian university can claim the same credits on the 1040, and the Canadian tuition credit on the T1. Both apply; the foreign tax credit reconciles any overlap.

The RESP problem

An RESP belongs to a Canadian family. For a US-person subscriber (the parent who opened it), the IRS treats the RESP as a foreign trust: Forms 3520 and 3520-A annually, the Canada Education Savings Grant taxable as income when received, and the plan's earnings taxable annually to the subscriber. The cost of the filings often exceeds the grant. Families with one US-person parent typically have the Canadian parent subscribe. Educational assistance payments to the student are taxable to the student in Canada; if the student is also a US person, the earnings portion is taxable in the US.

The 529 problem

A 529 plan belongs to a US family. For a Canadian-resident owner, the CRA treats it as an ordinary investment account: the annual income and gains are taxable to the owner, and the treaty offers no protection. An American moving to Canada with a 529 either keeps it and reports the earnings annually on the T1, transfers ownership to a US-resident relative, or uses it for qualified expenses before moving. Distributions for qualified expenses remain tax-free in the US.

Worked example

A Toronto family sends a daughter to a Michigan university at $50,000 USD a year. The father is a US citizen.

• Canada. The daughter claims the tuition credit on Form TL11A: roughly $68,000 CAD of tuition, 15% federal credit of about $10,200, carried forward or transferred up to $5,000 to a parent.
• US. The father claims the daughter as a dependent and, if his modified AGI is under the phase-out, the AOTC of $2,500 for each of four undergraduate years (the Michigan school issues a 1098-T).
• RESP. Opened by the Canadian mother, not the US-citizen father, so no Form 3520 filings and no US tax on the grant. Educational assistance payments are taxable to the daughter in Canada at her low rate.

Official sources

"Universities outside of Canada certify a student's eligibility for the tuition, education, and textbook amounts on this form." — Canada Revenue Agency, TL11A Tuition and Enrolment Certificate – University Outside Canada, https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/tl11a.html

"The eligible student must be enrolled at an eligible educational institution." — Internal Revenue Service, Education credits: AOTC and LLC, https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-llc

Practitioner note

The tuition credits are the easy part; the savings plans are the trap. A US-citizen parent who opens the RESP has a foreign trust to report every year for the life of the plan, and the filing cost exceeds the government grant. Put the RESP in the Canadian parent's name before the first contribution. And an American moving north with a 529 should spend it or move it before the CRA starts taxing the growth.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the cross-border tuition credit claims, the RESP and 529 structuring, and the annual returns for cross-border families with students. See cross-border pricing or book a call.