The Tax Blog for Smart Canadians

The question of residence

This is an important one because believe it or not, the Income Tax Act defies the laws of physics, and here’s how: just because you’re not “physically” in Canada does not mean that you are no longer a resident of Canada for tax purposes.

For one, you are tied to Canada through your home and your family, whether they are your parents or your spouse and children. This is what the CRA calls significant residential ties to the country. Secondary ties to Canada include your driver's license, health insurance card, passport, personal effects, etc. All these factors tie you to Canada and make you a factual resident for tax purposes. This means that you have to file a federal tax return like any other resident of Canada, and you will be taxed on your worldwide income.

Having to declare the income earned in the foreign country on your Canadian tax return might seem unfair at first. Won’t you be double taxed for that income if you have to file a tax return in the foreign country? To address this problem, the government offers foreign tax credits, which help to alleviate your tax burden if you paid tax in the foreign country.

Do I have to file a tax return in the foreign country?

As usual, the answer to this and to any tax question is that it depends. Let’s look at the most common case of Canadians going abroad to study, which is in the United States.

The Internal Revenue Service (IRS) will consider you a United States resident for tax purposes if you meet the Substantial Presence Test. You meet this test if you were physically present in the U.S.:

1. 31 days in the current tax year, and
2. 183 days during the 3-year period that includes the current tax year, the prior year, and the 2^nd prior year counting:
   
   

• all the days you were present in the current tax year,
• 1/3 of the days you were present in the prior year, and
• 1/6 of the days you were present in the 2^nd prior year.

There is an exception to this rule for students. Here, a student is any individual who is temporarily in the United States on an F, J, M or Q visa for the primary purpose of studying at an academic institution or vocational school, and who substantially complies with the requirements of that visa. This exception extends to family members such as the spouse and children.

If you can’t be excluded from the Substantial Presence Test, there are provisions in the Canada/U.S. tax treaty that exempt students from paying tax, such as Article 20.

Can I claim my foreign tuition fees on my federal tax return?

Yes, in the same way as someone who attends a Canadian post-secondary institution, through the tuition tax credit. To do so, you will need a TL11A certificate filled out by the foreign educational institution.

The eligibility criteria for the tuition tax credit when studying abroad are stricter than for a Canadian institution. All the following conditions must be met:

• you have to be in full-time attendance at a university outside Canada;
• each course that is claimed for tuition purposes must last at least 3 consecutive weeks and lead to a degree;
• the tuition fees claimed must consist of eligible fees and must have been paid for the calendar year shown on the form.

To be considered in full-time attendance, you must be enrolled on a full-time basis and be either physically present on the campus of the university or virtually present at the university in scheduled, interactive, course-related activities conducted online.

The foreign educational institution must also meet all of the following conditions:

• it has the authority to confer academic degrees of at least the bachelor level (bachelor’s degree or equivalent) according to the education standards of the country where it is located;
• it has an academic entrance requirement of at least secondary school matriculation standing;
• it is organized for teaching, study and research in the higher