Would you like to tax that tax sir?

January 31, 2008 8:59 AM

Are Canadian graduate students on stipend and studying in the USA required to file both US and Canadian taxes?

I'm a Canadian graduate student completing a PhD in the US and despite attending many uninformative tax information sessions and much googling I'm still utterly perplexed. I know I am to file a US tax return, but have yet to get a straight answer on whether I need to file a Canadian return as well (effectively getting double taxed). A Canadian friend of mine says he just sends in a letter every year saying he's a poor grad student and already pays US taxes and he claims to be left alone. Still I'd like to know what the law states. It appears that I actually am supposed to be taxed by both countries. Last year I, for fun, completed a canadian tax return and discovered that between the US and Canadian tax returns one quarter of my pittance of a stipend (20k) was going to taxes. Given that over half of it goes to rent and utilities, well... one can always eat snow. So what do other canadian students in the US do?

posted by Smegoid to work & money (7 comments total)

I assume your stipend is from U.S. sources? If you are not resident in Canada, then you shouldn't have to pay taxes on it. The CRA explains it all.
posted by grouse at 9:14 AM on January 31, 2008

Heh, my weekly question refreshed in amount an hour and I'll be asking a similar question, only the other way around (US recently graduated Masters student studying/working in Canada).

Unlike the US, which bases taxation on citizenship, Canada bases taxation on residency. You need to determine if Canada still treats you as a resident, even though you've been living abroad. CRA has a guide here. (On preview: I saw the one grouse linked, but my link goes to a different CRA guide. There may be overlap in information, but more can't hurt)
posted by Nelsormensch at 9:19 AM on January 31, 2008

Nelsormensch, the Foreign Earned Income Exclusion means you might be able to exclude your income earned in Canada from U.S. taxation, if you are either a bona fide resident of Canada, or are physically present in foreign countries for at least 330 days in 12 months. More in Pub 54.
posted by grouse at 9:26 AM on January 31, 2008

Additionally Smegoid, regardless of whether or not you're deemed a resident of Canada, you still shouldn't be paying much tax on your stipend. In both the US and Canada, you need to make a certain amount before they hit you up for income tax (though you may end up losing a little to Social Security) and a grad student's meager stipend should fall below that amount. If you calculated returns that left you owing $5000, something was definitely calculated incorrectly.

Also, Parliament altered the tax laws for 2006 and beyond regarding grant-based funding, making in entirely tax-exempt. So even if the US wants a small chunk for Social Security, probably don't have any taxable income in the eyes of the CRA.

(Thanks for the info grouse, but my situation is a little more complicated. Feel free to check my question in about an hour though, as I'd appreciated some input there)
posted by Nelsormensch at 9:36 AM on January 31, 2008

Grouse's comment is basically correct. More specifically, your status under Canadian tax law is likely that of a "deemed non-resident": someone who is considered to be a resident of another country for that country's tax purposes. You can read all about the gory details in this bulletin. If you want to be absolutely sure that you're filing things correctly, you can also submit Form NR73 to the CRA; they'll look at the information you provide (basically, lots of questions about what kind of residential ties you have in the States and in Canada) and tell you what your residency status is.

I went through all this rigamarole when I first came to Chicago to start my degree. At the time, the situation was even worse for Canadian citizens studying in the States: tuition remissions were (and still are), under Canadian tax law, considered income. Normally you can claim the tuition as a non-refundable credit, but at the time the amount that you could deduct was capped at some figure like $5000 per year. While this might have covered tuition for a year at a Canadian university, it certainly didn't come close to covering the tuition remissions I was receiving at a private university in the U.S.; if I had been filing as a resident of Canada, I would have ended up paying taxes on money I never saw. I sent in Form NR73 to the CRA, got back a letter a few months later saying, "We consider you to be a deemed non-resident", and I haven't paid any taxes to Canada since.

Finally, note that it can still be in your interests to file your T1 every year, even though you don't owe any taxes: I believe you can still claim tuition paid on your behalf on Schedule 11, and since the credits roll over from year to year, you can actually accumulate a fair amount of non-refundable tax credits that you can claim against your future income when you return to Canada.
posted by Johnny Assay at 9:38 AM on January 31, 2008

Brilliant stuff! Thanks everyone, this clears it up immensely. Going to go read the links and hit you back with more praise. Also forwarding this to a few other Canadians at my school in this situation.
posted by Smegoid at 11:07 AM on January 31, 2008

the US, which bases taxation on citizenship

And residency. U.S. citizens living abroad and making less than some amount in the mid-$80,000s pay no U.S. income tax at all.
posted by oaf at 12:13 PM on January 31, 2008