Canada is a popular choice for international students. It offers stellar learning and research opportunities as well as a high standard of living, all at a lower cost compared to other countries.
It’s also the destination of choice for Indian students. The Times of India reports that over 67,000 students had their entry permits approved in 2021 — 83% more than in 2020.
However, there’s one thing both current and aspiring international students need to note: you will need to pay Canadian income tax if you get a job or work at the university. You will also need to declare an income earned outside of the country. Fortunately, it’s a relatively straightforward process. This quick guide can get you started.
Determining Residency Status
You’re considered a Canadian resident if you meet all the following conditions. First, you have to live in Canada for at least 183 days per calendar year.
You also shouldn’t be considered an Indian resident under the terms of the Canada-India Income Tax Agreement. Finally, check if you have significant residential ties in the country.
This can include having bought or rented a home, possessing a Canadian bank account or driver’s license, or living with a spouse or dependent. It’s important to note that even if you have these ties, you’re considered a non-resident if you don’t meet the criteria mentioned above.
Ultimately, your status determines your obligations and eligibility for credits.
What You Need To File
Both residents and non-resident students file taxes if they earn income in Canada. For this, prepare your social insurance number (SIN). If you’re not eligible, you can apply for an Individual Tax Number or ITN online.
You’ll also need some tax slips. Form T2202A allows you to get credit on education-related costs, and Form T4 summarizes your earnings and deductions from work.
Meanwhile, Form T4A and the Income Tax and Benefit Package for Non-Residents and Deemed Residents of Canada are for students with other income sources, like scholarships or research grants.
From here, tax obligations, benefits, and credits differ depending on residency status. We briefly run through them below.
Residents
As a deemed Canadian resident, you’ll file taxes on all your sources of income in a tax year, whether they’re earned in Canada or elsewhere. Yet unlike other residents, you pay a federal surtax instead of both federal and provincial taxes.
This means you can claim federal tax credits, but not provincial or territorial ones. You can also apply for the goods and services tax/harmonized sales tax (GST/HST) credit. Finally, adult students with children can apply for the Canada child benefit (CCB), which aims to help with childcare costs.
Non-residents
Non-residents pay income tax packages. International students usually file the particular package for the province or territory they reside in.
For those with permanent Canadian employers, both federal and provincial tax rates apply.
These rates will vary. For example, the tax rate in Nova Scotia is 8.79% on the first $29,590 of taxable income. Meanwhile, this tax calculator for Alberta residents reflects a tax rate of 10% on the first $131,220.
For income from scholarships or research grants, file Form 2203. The sole benefit you can claim is the CCB, though only through a spouse or common-law partner who’s a Canadian resident.
You can also calculate taxable income as you do in India. Our guide to taxable income for Indian residents explains this to be gross total income minus total exemptions and deductions.
You may find Canadian income tax to be a downside to studying abroad. However, it’s these funds that help fuel the country’s quality education in the first place. Ultimately, you can rest assured that you’ll also be investing in your own future.