International Students and Tax in Canada
The number of international students who are choosing to study in Canada has been increasing over the past two decades. According to the ICEF Monitor, the number of international students in Canada rose by 16.25% from 2017 to 2018 to reach 572,415 foreign students studying in the country. International students who live in Canada may have to file income tax returns. They might have to pay income tax on any earnings that they receive as research assistants or from other employment. If they earn income from a business or investments, they might also have to file Canadian tax returns. In general, students must also report income that they receive from outside of the country. Whether you might have to file a Canadian tax return depends on your residency status instead of whether you are a citizen. This makes it necessary to determine what your residency status is so that you know whether you might need to file a tax return in Canada.
Table of Content:
- Residency status in Canada
- Do you have residential ties to Canada?
- Figure out your residency status
- Filing a tax return
- Filing returns with zero income
- When you must file a Canadian tax return
- Tax obligations for non-residents and deemed non-residents
- Get help from Ensight Cloud CPA
Residency status in Canada
The residency status of international students is determined on a case-by-case basis. For purposes of taxes, international students in Canada are deemed to have one of the following four types of residency status:
- Resident
- Non-resident
- Deemed resident
- Deemed non-resident
International students who are considered to be residents for tax purposes include students who live in the country part of the year. To figure out your residency status, you will need to complete a two-part analysis.
1. Do you have residential ties to Canada?
The first step in determining your residency status in Canada for tax purposes is to figure out whether you have residential ties to the nation. Substantial residential ties to the country include owning a home in Canada, having dependents in Canada, or having a Canadian spouse or common-law partner. Secondary ties that are considered to be relevant include the following:
- Owning personal property such as a vehicle in Canada
- Social ties to Canada such as memberships in organizations
- Economic ties such as credit cards or bank accounts
- Having a Canadian passport or driver’s licence
- Having provincial health insurance
All of the factors are considered to determine an individual’s residency status. Residents are people who have established residential ties to Canada. Non-residents are people who have not established residential ties and who remain in Canada for fewer than 183 days.
2. Figure out your residency status
Deemed residents of Canada include people who have not established residential ties in Canada but who remain in the country for 183 or more days during a tax year. If you are a factual resident of Canada but have ties with another country with which Canada has a tax treaty, you might be considered to be a deemed non-resident. If you are uncertain about your residency status and want the Canada Revenue Agency to determine it for you, you can complete Form NR73 and mail it to the address that is listed on the form.
If you are a non-resident or a deemed non-resident of Canada but earned income while you studied as an international student, you must pay income taxes on the Canadian-source income that you earned, including earns from a job, investments, taxable scholarships, or dividends. If you earned income from employment, filing a tax return is both required and may also allow you to receive a refund of any employment insurance and Canada Pension Plan withholdings from your paychecks.
Filing a tax return
Once you have determined your residency status, you can then file a tax return. If you have Canadian source income as an international student or are considered to be a resident, you can claim tuition credits and may be eligible for the B.C. sales tax credit.
If you are a newcomer and will be filing your tax return for the year in which you arrived, make certain to include the date of your arrival. Doing this can allow you to receive a percentage of the tax credits that may be available to you for the tax year. However, you will not receive the full credits since you were not a resident for the entire year. If you are either a deemed non-resident or a non-resident who received no Canadian-source income, you will not be required to file a tax return in Canada.
To file your tax return, you will need to obtain a Social Insurance Number or an Individual Tax Number. The SIN is a nine-digit number that you need to work in Canada as a temporary resident, a permanent resident, or a Canadian citizen. There is no fee to apply for a SIN, and you can do so at your local Service Canada Centre with your original documents. The ITN is a nine-digit number that is issued to non-residents who are not eligible to receive an SIN.
If you earned an income from employment, you will need your T4 slip. If you received scholarships or bursaries, you will need to gather your T4A slip to prepare your tax return. You should also collect the receipts for your expenses and your T2202 for the tuition fees that you paid during the tax year.
Some of the expenses that you paid during the tax year may be deductible. Others may entitle you to claim tax credits. Common types of expenses that international students might claim tax credits for include the following:
- Tuition
- Student loan interest payments
- Medical bills
- Charitable donations
Some of the types of deductions that you might be able to claim for your qualifying expenses include the following:
- Moving expenses
- Temporary accommodation expenses
- Transportation of your personal belongings
You should retain the receipts from the expenses related to relocating to Canada. You will not be able to deduct your relocation expenses if your sole income in Canada is from bursaries, fellowships, or scholarships that are exempt from taxes under the current law. If you claim expenses, you are required to keep documents that prove them for a minimum of six years after you have received an assessment notice from the CRA.
Filing returns with zero income
If you are not obligated to pay tax in Canada when you earned no income, you can still choose to file a zero-income tax return for the year in which you paid tuition in Canada. Once your return is processed, you will receive an assessment notice that contains the unused tuition expense for which you are eligible to claim in the future. During the first year in which you are required to pay income tax, you will have to claim the unused tuition fee from your zero-income return.
If you are married to a Canadian resident, have a Canadian common-law partner, or have a Canadian parent or grandparent and are that person’s dependent, you can transfer up to $5,000 of your tuition fee to him or her to claim for the tax year after subtracting any amount that you used to reduce the taxes that you owed. If you choose to transfer some of the tuition fees to a qualifying taxpayer, you will need to complete the transfer section on the T2202A certificate that you obtained from your school. If you transfer some or all of your tuition fees, you should retain your documents in case the CRA requests them later.
When you must file a Canadian tax return
You are required to file a tax return if any of the following applies:
- You earned income from employment and are required to pay taxes
- The CRA sent a request for you to file a tax return
- You are married or have a common-law partner and have chosen to split pension income during the tax year
- You received advance payments for the working income tax benefits during the tax year
- You sold capital property such as real estate or stock or had a taxable capital gain
- You are required to repay employment insurance or old age security benefits
- You have amounts to repay that you withdrew from a registered retirement savings plan under the Lifelong Learning Plan or the Home Buyers’ Plan
- You are required to contribute to the Canada Pension Plan
- You paid employment insurance premiums on your eligible earnings or self-employment income
- You are a non-resident who received Canadian source income
Even if none of these situations apply to you, you might still want to file a tax return. You should file a tax return if you want to claim a refund, claim the working income tax benefit, claim the B.C. sales tax credit and the GST credit, or if you have incurred a loss for which you want to claim in future years. You should also file a return if you want to carry forward your tuition fee or transfer a portion to someone else. If you want to begin receiving child benefit payments or your common-law partner or spouse does, you will also want to file a return. You should also file a return if you have unused investment tax expenses or credits that you want to carry forward to future tax years or if you wish to report income that you could contribute to an RRSP to maintain your deduction limit during the future years. Finally, filing a tax return may be a good idea if you received allowance benefits or guaranteed income supplements through the old age security program.
Tax obligations for non-residents and deemed non-residents
If your residency status is that of a non-resident or a deemed non-resident, and you earned Canadian-source income, you are required to file a Canadian tax return. Canadian-source income that you receive during the tax year will generally be subject to either Part XIII or Part I tax.
Taxes that fall under Part XIII are deducted from specific types of income that you receive from Canadian sources. You will want to tell the payer that you are a non-resident of Canada and the country in which you are a resident to make certain that the correct amount is deducted. Some of the common types of Canadian-source income for which Part XIII tax is deducted include the following:
- Rental payments
- Royalty payments
- Dividends
- Pension payments
- CPP benefits
- Old age security pension
- RRSP payments
- Retiring allowances
- Annuity payments
- Registered retirement income fund payments
- Management fees
Part XIII tax is not refundable. You do not need to file a tax return to report it since it is your final tax obligation as a non-resident. However, you can choose to file a return if the income came from rentals of real property, timber royalties, or certain types of Canadian pension income.
Part I tax is deducted by the payer from your income. However, you will still need to file a tax return to determine your tax obligation for the following types of Canadian-source income:
- Income you earned from employment or from a business
- Taxable portions of scholarships, bursaries, research grants, and fellowships
- Income earned from services in Canada other than from ongoing employment
- Taxable capital gains
- Income earned in another country if you were a resident of Canada
Get help from Ensight Cloud CPA
As an international student in Canada, you may be required to file a tax return, or you might want to choose to do so in certain cases. The professional accountants at Ensight Cloud CPA can help you to understand your tax obligations and whether it might benefit you to file a tax return even if you are not required to do so. Contact us today to schedule an appointment to learn more about filing tax returns in Canada.
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Susie Song
CPA CGA MBA.
Managing director at Ensight Cloud CPA. Susie has extensive experience in multiple industries.
