INTERNATIONAL STUDENTS

Status in Canada:

An international student is typically a foreign national with a study permit, holding temporary resident status under the Immigration and Refugee Protection Act (IRPA).

Entitlement to work without a work permit^[1]:

• With a study permit a full-time student is generally allowed to work on or off campus unless the permit says otherwise.
• As of November 8, 2024, off-campus work is limited to 24 hours per week during regular academic sessions.
• During scheduled breaks, students may work unlimited hours.
• “Work” includes self-employment. Students engaging in gig or freelance work must track their hours to remain compliant.
• After completing studies at an eligible institution, students may qualify for a Post-Graduation Work Permit (PGWP).

Obligation to pay income tax:

• Immigration status under IRPA does not determine tax residency under the Income Tax Act. A temporary resident for immigration purposes can be:

• A resident for tax purposes
• A non-resident or deemed non-resident for tax purposes
• A deemed resident for tax purposes

Residents (for tax purposes)

• Required to pay tax on worldwide income earned during the period of residency.

Non-residents or Deemed Non-residents

• Tax applies only to income earned in Canada while non-resident.

Deemed Residents

• Required to pay tax on worldwide income for the entire year.
• Unlike regular residents, deemed residents are not considered residents of a province or territory.

Filing Requirements

• Non-residents and deemed residents must use Form 5013-R rather than the standard T1.
• UFile automatically applies Form 5013-R where applicable, although a CVITP tax clinic would not typically prepare a tax return for a non-resident.

Is an international student a resident, deemed resident, non-resident, or deemed non-resident?

Whether an international student is considered a resident, deemed resident, non-resident, or deemed non-resident for tax purposes depends on their specific circumstances. The meanings of these classifications are addressed in the document, Residency for Income Tax Purposes.

Depending on a student’s circumstances, it may be important to examine the tax treaty between Canada and the student’s home country before assessing residency status for tax purposes. Assessing residency status can sometimes be complex. The tax clinic will expect the student to determine their tax residency status on their own without advice from the clinic.

Example Scenarios:

1. Deemed Resident

• A student is in Canada for more than 183 days,
• Has no significant residential ties in Canada,
• No tax treaty exists between Canada and their home country.
  ➡ Result: The student is a deemed resident of Canada for tax purposes.

2. Deemed Non-resident (by treaty)

• A student is in Canada for more than 183 days,
• Has no significant residential ties in Canada,
• Is considered a tax resident of their home country,
• A tax treaty exists between Canada and their home country.
  ➡ Result: The student is initially a deemed resident of Canada, but must apply the treaty tie-breaker rules. If the treaty assigns them to their home country, they are a deemed non-resident of Canada.

3. Factual Resident

• A student is in Canada and establishes significant residential ties (e.g., housing, spouse/partner, dependents).
• They are also considered a resident of their home country under its laws.
• A tax treaty exists, and under its provisions the student is determined to be a tax resident of Canada.
  ➡ Result: The student is a factual resident of Canada.

Entitlement to benefits:

To receive the carbon rebate (prior to expiry of the program), GST/HST credit, or Ontario Trillium Benefit, a person must be a resident of Canada for tax purposes.

• Residents and deemed residents: Eligible for these benefits.
• Non-residents and deemed non-residents: Not eligible.

SINs and ITNs for non-residents

• If a student is allowed to work in Canada, they can apply for a temporary Social Insurance Number (SIN).
• If they are not permitted to work, they are not eligible for a SIN. If they have a reason to  file a tax return and wish to do so, they can apply for an Individual Tax Number (ITN) using Form T1261.
• If the tax deadline is approaching and the student has not yet received their SIN or ITN, they can still mail in their tax return with a note explaining that an application for a number has been submitted (although it could be a better idea to get a number before filing)

UFile for non-residents:

1. In the Identification section, set Province of Residence to Non-resident.
2. In Interview setup, check the box for Immigrant, emigrant, non-resident taxpayer.
3. Click on the + for a non-resident option
4. Complete the required and applicable fields.

Important notes:

• Non-residents cannot claim the basic personal amount unless their Canadian employment income is 90% or more of their total worldwide income. UFile requires worldwide income to make this calculation.
• Tax returns for non-residents must be mailed in; they cannot be e-filed.

An example - an international student from India:

Consider a student from India enrolled in a four-year study program in Canada. The student:

• Intends to work full time in Canada after graduation and eventually apply for permanent residence (though approval is uncertain).
• Rents housing in Canada, works part time, holds a Canadian driver’s license, has friends, and participates in social activities.
• Has no spouse or relatives in Canada but maintains family ties (parents and siblings) in India.
• Returns to India each summer for about a month.

Based on these facts, the student likely has significant residential ties to Canada and would generally be considered a factual resident for tax purposes.

Before confirming residency status, however, we must check whether the student could instead be a deemed non-resident. This depends on whether, under Indian law, the student is also considered a tax resident of India, and whether the Canada–India tax treaty applies.

In this case, it appears the student would not be a resident of India for tax purposes and therefore not subject to Indian income tax. As a result, the student would be treated as a tax resident of Canada.

Even if the student were considered a resident of India for tax purposes, the Canada–India tax treaty contains tie-breaker provisions that would determine which country has primary taxing rights:

1. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:

a. he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (hereinafter referred to as his centre of vital interests);

b. if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

c. if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

d. if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Under the treaty, if a student is considered a tax resident of both Canada and India, it is first necessary to determine whether they have a permanent home in one country, both countries, or neither.  On the facts, we might reasonably conclude that the student from India has no permanent home in either country. The next step is to consider where they have their habitual abode. In this scenario, the habitual abode is likely Canada, which could lead to the conclusion—based on the tax treaty—that the student is taxable in Canada and not in India.

It is important to note that this example is illustrative only. The tax clinic does not perform this analysis. The student must make their own determination, or submit Form NR74 to the CRA.

Another example - an international student from the U.S.:

Let’s say an American citizen is studying in Canada. The student is in Canada for more than 183 days and therefore we initially declare them a deemed tax resident of Canada.

Because the student is a U.S. citizen, they are also a tax resident of the U.S. This creates a situation of dual tax residency, requiring reference to the U.S.-Canada tax treaty.

The U.S.-Canada tax treaty includes these provisions:

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);

(b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and

(d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

Assuming the student does not have a permanent home in either Canada or the U.S., the next step is to assess where their personal and economic ties are stronger. If these ties are closer to Canada, the student is treated as a tax resident of Canada, not the U.S.

However, the treaty includes a “saving clause” (Article XXIX), which allows the U.S. to tax its citizens as if the treaty did not exist, with some exceptions. This clause is unusual in international tax treaties and can complicate the student’s tax situation.

Canadians studying in the U.S.:

Canadian students attending a U.S. university typically hold F-1 immigration status under U.S. law. For tax purposes, these students do not become U.S. tax residents during their first five years in the U.S., and they generally remain tax residents of Canada.

While in the U.S., the student must file Form 1040-NR, the federal tax return for nonresident aliens, and also submit Form 8843. In Canada, the student files a regular T1 tax return.

If the student worked in the U.S., they report foreign employment income on their Canadian return. Any U.S. tax paid may be eligible for a foreign tax credit to reduce Canadian taxes owing.

References:

• CRA website: Taxes for International students studying in Canada - Canada.ca
• Guide T4058, Non-Residents and Income Tax
• See the documents on Residency for Income Tax Purposes and Students.
• Website with information about F-1 status for students in the U.S.
• IRPA (section 30) and Regulation (Part 9 - Temporary Residents).