International Student Tax Returns: 6 Things to Know

September 11, 2023 Andrew AdolphAudits

International Student Tax Returns: 6 Things to Know

Canadian taxes can be confusing if you are coming from another country with a completely different system. The last thing you want is to be caught in tax trouble in a new country. 

In this blog, we’ll discuss international student tax returns, some tips to pay your taxes on time, and perhaps save some money by doing things right. In many cases, you may be in a refund position and the only way to claim your refund is to file a tax return.

Residency

In Canada, taxes are levied based on residency. People who are resident in Canada are “captured” and have to report their worldwide income for the year on their Canadian tax return. They are also eligible to claim many tax credits.

There are four types of residency, and each has its own implications:

• Resident – you live in Canada and you have significant ties, like a bank account, rental agreement or you own a place.
• Deemed resident – you stay in Canada 183 days or more in the calendar year
• Non-resident – you have no significant ties in Canada and are here less than 183 days in the year
• Deemed non-resident – this is due to a treaty with another country.

Determining residency is important as you would like to know which country to file a tax return for. As a resident or a deemed resident, you will report your income on a Canadian tax return. If you are a non-resident, this may not be the case.

Resident International Student Tax Return

If you are a resident of Canada for tax purposes, you’ll generally need to report your worldwide income. If you are a non-resident, you’ll typically only need to report income earned in Canada.

For an International student tax return, you must file a T-1 form also known as a General Income and Benefit Return Form. You must File by April 30th and at the latest June 15th. Waiting longer could result in penalties and possible loss of tax deductions. 

Non-Resident International Student Tax Returns

If you are a non-resident for tax purposes and earned income from Canadian sources, you might need to complete the T1 General form, but you’ll likely need to use the NR4 form or the Statement of Amounts Paid or Credited to Non-Residents of Canada form to report your Canadian income.

The deep-down rules for determining residency are described in Canada Revenue Agency’s Income Tax Folio S5-F1-C1, Determining an Individual’s Residence Status.

What Are Tax Credits?

Tax credits can be considered as tokens that can used reduce taxes payable in a year. This is great if you are earning income from a job while attending school. Some credits are refundable if not needed to reduce taxes payable.

The more common is the non-refundable tax credit. If you don’t need this tax credit to reduce income in a tax year, then it expires. With tuition fees, you can carry forward an unused amount to the future or transfer it to a spouse, parent or grandparent.

The non-refundable tax credits available to students are:

1. Basic Personal Amount: your first approximately $15,000 of income is tax free
2. Canada Employment Amount: an additional $1,287 if you are an employee (had a job) in the tax year 
3. Interest paid on a student loan
4. Tuition Amount – fees paid to attend a post-secondary institution, This amount will be provided by the educational institution on a special form called the T2202.

The refundable tax credits available to students are:

• Canada Training Credit: an additional tax credit of $250, with many stipulations and conditions
• GST Credit – This credit is issued by cheque to people with low income, such as many students.
• Provincial Credits.

Understand The Tax Treaties In Your Country To Save Money

Working wouldn’t make much sense if you’re going to pay both taxes in Canada and in your own country. It’s important that you understand your country’s tax treaty with Canada so you pay less taxes. 

In some cases, you might only have to pay taxes in one country, worst-case scenario you’ll end up with double taxation but at a greatly reduced percentage.

For example, India allows its international students to only pay taxes in Canada to avoid double taxation. In addition, according to the tax treaty with Canada, Indian international students are exempt from paying taxes altogether up to a certain limit of income. 

Check the tax treaties within your own country to see what you can claim as an international student.  

Keep Accurate Records

The CRA does not want its residents to abuse the system, so it’s important that you keep accurate records of what you plan to write off. Create a system to keep track of important documents, such as pay stubs, tuition receipts, and other relevant financial records. This will make it easier to complete your tax return and provide accurate information if you’re audited by the CRA.

The Bottom Line

If you’re struggling to understand the tax laws in Canada, try checking out your own schools’ resources or you can book a free consultation with me. Many universities across Canada provide tax clinics for international students with professionals on standby, ready and willing to help. 

Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.