Tax Changes for Students Studying Abroad

Studying abroad can be an exciting opportunity for any Canadian, but it can complicate matters when it comes to reporting taxes.

Fortunately there is some good news in recent tax changes, which makes tapping into an RESP, claiming tuition/education and textbook amount, and understanding residency, easier.

Effective 2011, the qualifying period of study for claiming the tuition/education and textbook amount, a non-refundable tax credit, has been shortened to three consecutive weeks. The student may also qualify to withdraw Education Assistance Payments from the RESP in that case. Normally the required study period is 13 weeks. 

Since Canada imposes taxes on the basis of residency, studying abroad has implications for Canadians filing their taxes or trying to claim tax credits. If a taxpayer keeps significant residential ties in Canada (such as a residence, bank accounts, driver’s licence, etc.), they will generally be considered a factual resident of Canada. A deemed resident is an individual who does not establish significant residential ties with Canada, who stays in Canada for 183 days or more in a calendar year, and is not considered to be a resident in their home country under the terms of a tax treaty between Canada and that country.

Deemed and factual residents generally have to file a Canadian income tax return every year to report income from all sources, domestic and international. They also must do so in order to claim entitlement to certain benefits.

CRA has some great basic information on this on their website. For example, Pamphlet T4131, Canadian Residents Abroad, and the current version of Interpretation Bulletin IT‑221, Determination of an Individual's Residence Status provide helpful insights. For those planning on studying in the United States, Pamphlet P151, Canadian Residents Going Down South, has pertinent useful information. For help determine your residency status see Form NR73, Determination of Residency Status (Leaving Canada). It is a good idea to have help completing this form from a professional, as complicated consequences of departure taxes and part-year claims on some provisions may be required.

Also remember that one of the following tax forms must be completed and certified by a qualified foreign educational institution to support any claim for the Canadian tuition, education, and textbook amounts: