Students currently studying in Canada may incur several expenses, including rental charges, tuition fees, and more. But what the majority of students don’t know is that you can claim those expenses when filing tax returns as part of your refund. This is one of the reasons why it is always essential to gain an understanding of how tax works for international students and how much tax return they are entitled to.
If you are one of those students who are currently facing difficulty in filing your taxes, or you aren’t sure how much you will get on your tax refund, this guide is for you.
What is a Tax Return?
A tax return is simply a set of forms you fill out and send to the Canada Revenue Agency (CRA), which is the Canadian government body that collects taxes. On this form, you are likely to report all the money you have earned from January 1st to December 31st.
You are also supposed to report any amounts on these forms that you spent, which can be used to reduce your tax. These reductions in taxes are known as deductions and credits. The CRA then uses this information to figure out how much tax you should have paid and how much you actually paid.
Why Should International Students File a Tax Return
Even if you did not earn much money, or even if you had no income at all while studying in Canada, filing a tax return is highly recommended and often very beneficial. Here are the main reasons why:
- Getting a Tax Refund: If too much tax was taken off your paycheques during the year, filing a return is how you get that extra money back.
- Accessing Refundable Tax Credits: Canada offers certain benefits, such as the GST/HST credit, which are paid directly to you, even if you have paid no tax or have a very low income. However, it is necessary to file a tax return to receive these payments.
- Building Credit for Future Years: Even if you do not owe any tax or get a refund right now, some tax credits, including your tuition amounts, can be saved and used in future years when you earn more money and have a tax bill.
- Required by CRA: If you earned income, your employer would have given you a tax slip like a T4 slip, which means the CRA expects you to file a return.
Determine your Residency Status
The initial step in understanding the basics of how taxes work is to determine which tax category you will fit into for tax purposes. Your residential ties will help you choose the best option as an international student, as in Canada, taxes are based on residency status rather than citizenship.
These residential ties include your Canadian driver’s license, a house in Canada, a credit card or Canadian bank account, health insurance with a Canadian province, your social ties, and more. But how do you know whether you are a resident, non-resident, deemed resident or deemed non-resident in Canada? Here’s what you need to know:
Resident and Non-Resident Status
To get a resident status in Canada, you must have significant residential ties. However, you will be considered a non-resident of Canada if you do not have well-established residential ties with Canada and your stay in Canada is for less than 183 days during the year.
Deemed Resident and Deemed Non-Resident
By not having residential ties with Canada, you will most likely be considered as a deemed resident for income tax purposes if you stay in Canada for 183 days or more in a calendar year or you are legally not considered a resident of your home country following the terms of a tax treaty between your homeland and Canada.
However, individuals who are considered residents of another country with which Canada has a tax treaty and have established significant ties with Canada will be deemed non-residents of Canada.
Tax Obligations Based on Your Residency Status
We are sure you have understood your residency status so far. Your residency status is essential to know about your income tax return filing requirements in Canada:
- If you are new to Canada and have established significant residential ties there, you must follow the newcomers to Canada filing requirements.
- If you do not have significant residential ties or you aren’t deemed to be a resident of Canada, you are supposed to follow the non-resident of Canada filing requirements.
- As a deemed resident of Canada, you can look for the filing requirements for the deemed residents of Canada.
- Being a deemed non-resident of Canada, you will follow the same rules that non-residents of Canada follow.
Common Tax Credits and Benefits for International Students
These are the main ways international students can save money or get a refund when filing their tax return in Canada.
-
Tuition, Education, and Textbook Amounts
As an international student in Canada, you may be eligible to claim a non-refundable tax credit for eligible tuition fees paid to a designated Canadian educational institution. The amount you can claim is reported on the T2202 form (Tuition and Enrolment Certificate), which your school provides.
These tuition or educational tax credits help you pay back a portion of your higher education tuition fees. You get to transfer a maximum of $5,000, which is the current year’s federal tuition costs. Keeping in mind that they are non-refundable credits means that you won’t get a tax refund if the income taxes you pay are less than your education credits.
The great news is that if you do not use all of your tuition credit to reduce your tax to zero, you can transfer a portion to your spouse or a parent or a grandparent. This helps them reduce their tax. Or you can carry forward the unused amount indefinitely to use in future years when you have a higher income. This is incredibly valuable for students who plan to work in Canada after graduation.
-
Goods and Services Tax/Harmonised Sales Tax (GST/HST) Credit
This is a very common refundable credit that many low-income Canadians, including international students, are eligible for. The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low incomes offset the GST or HST they pay on most goods and services they purchase.
You are required to file an income tax return electronically to be eligible for this tax return. The CRA automatically calculates if you qualify based on your income and sends you the payments if you do. Even if you have a very low or moderate income during the year, you can still be eligible for this credit.
-
Provincial Tax Credits and Benefits
Each Canadian province and territory has its own set of tax credits and benefits. Many of these are designed to help low-income residents, including students. These can vary significantly from one province to another, so it is essential to check the rules for the province you live in.
However, several common types of provincial credits may apply to international students. These tax credits include rent credits, which are offered by some provinces to help offset the cost of rent or property taxes.
Other than that, there are low-income tax credits given by some provinces to reduce your provincial tax or provide a refund.
You can find out which provincial credits you might be eligible for by visiting the website of your province’s Ministry of Finance, or you can search for tax credits for students in your specific province.
Conclusion
Filing a tax return is an essential part of your financial life as an international student in Canada. There is no single answer regarding how much tax return international students receive. However, by understanding your income and being aware of various deductions and tax credits, such as the GST/HST credit and tuition amounts, you can learn about significant refunds or future tax savings.
By gathering your documents, choosing a suitable filing method, and being aware of the deadlines, you can navigate the tax system with confidence. It is not just about meeting a requirement; it is about ensuring you receive all the benefits and money you are entitled to, which helps you manage your finances more effectively during your studies in Canada.
However, if you have a strict schedule and do not get enough time to figure out how tax return in Canada works for international students, get in touch with Tax Headaches to get their specialised tax-related services and get your work done on time.