Canadian Snowbirds Beware

Spending time in the US may lead to US tax obligations

Many Snowbirds spend the winter in the US Sunbelt to escape the harsh Canadian weather. In fact, roughly 82% of Florida’s vacationers are Canadian snowbirds. Are you one of them?

If so, you may be subject to tax in the United States on your worldwide income. This would be in addition to Canadian taxes. This double taxation situation could occur simply by being present in the US for 183 days or more, or if you meet the “Substantial Presence Test.”

Most Canadians aren’t aware of the Substantial Presence Test. Essentially, you could be considered a US resident for tax purposes for 2014 if, for example you were physically present in the United States for:

  • At least 31 days during 2014; and
  • A total of over 182 days when you add the number of days present in 2014, 1/3 of the number of days present in 2013, and 1/6 of the number of days present in 2012.

However, there is good news. By filing the “Closer Connection Exemption Statement for Aliens” (Form 8840), you can maintain your Canadian tax residency even if you meet the Substantial Presence Test. This form states that you have closer ties to another foreign country, such as Canada, where you will be paying taxes and thus not filing a US tax return.

It is crucial to count your days in the US carefully. Take note, there are certain exemptions not counted such as days regularly commuted to work in the US, days in the US for less than 24 hours when travelling to places outside the US, days you were unable to leave the US because of a medical condition or problem that arose while in the US, etc.

Items to be considered when proving that you have a “closer connection” with a country other than the US is the location of your permanent home, your family, personal belongings, banking, business activities, and the jurisdiction in which you hold a drivers license, vote and more.

You can find Form 8840 on the Internal Revenue Service website along with more with more details on closer connection items and days that count as being present in the US. The filing deadline is aligned with the US tax deadline, which is June 15.

For those planning to stay in the United States for longer than 182 days to enjoy the sun, there are some issues you should be aware of, but also some major opportunities to be taken advantage of.

For Canadians interested in moving to the United States, one of the largest considerations is giving up Canadian healthcare. Another challenge is how to become a Permanent Resident Alien in the United States. There are many immigration options, some are costly and complicated, while others are simple and more cost effective. Consult a professional to see which option is best for you.

On the other hand, taxes can be much lower in the US depending on the state, as some don’t have any state taxes, like Florida. In addition, with specific tax strategies, you may be able to withdraw from your RRSP and pay net taxes of only 15%. This can be a substantial savings based on your income and RRSP balance. Not only that, but based on years lived in Canada after the age of 18, you may still continue to receive your Old Age Security outside of Canada. Similarly, your Canada Pension Plan you have contributed to can also be received from outside of Canada.

With these considerations you may contemplate living in the US and vacationing in Canada!

Talk to one of our advisors at MCA to explore how the advantages of moving to the US would be beneficial to you.