US tax implications of Canadian GST/HSTC entitlement

[cw47]

Hi,

My child (my dependent - I pay most expenses) is a college student in Quebec, Canada, who also makes income (about $6,000 in 2021) from mostly self-employment work (about $2600 was a W2 from US work). They filed their Canadian and Quebec taxes and were determined to owe zero in Canadian Revenue Authority (CRA) taxes, and owe CAD$311 in tax to Quebec Revenu.

Also, CRA determined that they were eligible for a "GST/HSTC entitlement" which is described thus:

"The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST they pay."

This GST/HST entitlement from CRA totaled about CAD$150 in 2021.

My confusion is how this is reported on their US tax return. Do they put foreign taxes paid as CAD$311 (converted to USD, of course) and add the CAD$150 to some kind of foreign income category? Or is the tax-free GST/HST entitlement excluded from US taxes? Or, is the amount of foreign tax paid changed by the GST/HST amount? Thank you!

[DaveF1006 · Accepted solution]

First of all, GST/HST entitlement is not a taxable benefit and is not included in your income for income tax purposes.  As far as the foreign tax paid, you may be able to claim that as a Foreign Tax Credit if you reported the Canadian self-employment income in her US return. To report the Foreign Tax Credit.

• Federal>deductions and credits>deductions and credits>estimate and other taxes paid>Foreign Tax Credit>start or revisit
• if you report income  and information regarding the Foreign Tax Credit, be sure to report in US dollars.

[cw47]

Thanks much, Dave.

May I ask why the GST/HST entitlement isn't taxable? Is it because it is to offset taxes that are already being paid in Canada, thus isn't an "income," but more like a refund? I didn't see anything in Publication 525 that seemed quite right except may that it's like a (Canadian) federal tax refund?

[DaveF1006]

Keep in mind, this is a tax opinion on my part because there is no precedence in the US Tax code that addresses his. According to this Canadian source, " the goods and services tax/harmonized sales tax (GST/HST) credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset the GST or HST that they pay. You are automatically considered for the GST/HST credit when you file your taxes (Canadian)."

So assuming your daughter filed a Canadian Tax return, this was a credit received for paying sales taxes because of being in the low to modest income level. As you mention, this was like a refund and not compensation for work done. It's considered a credit and does not need to be reported as US income. In this case, what happens in Canada stays in Canada.