If Canadian Snowbirds are not careful, they could find themselves at the mercy of the U.S Revenue Authorities when tax season rolls around.
Flying out to warmer locales like the U.S. states of Arizona or Florida is an easy and straightforward decision that many Canadians take during the cold winter months.
However, if Canadian snowbirds are not careful, they could find themselves at the mercy of the U.S revenue authorities when tax season rolls around. New regulations could allow border officials in both countries to track time spent by Canadians in the U.S and vice versa.
Here are some tips for Canadians in Florida or other states to keep in mind:
Don’t stay too long
If you spend more than 183 days in the U.S, you will be considered a U.S resident and subject to U.S taxes on your worldwide income. Since the method of calculating days-stayed is not just the days in the current year, it would be best to limit your stay to 120 days annually.
Close connection exception
You would need to file a close connection exception statement for Aliens, also known as a snowbird filing. This is an IRS 8840 form and shows the U.S. internal revenue service that despite your lengthy stay in the U.S., you do have a close connection to your homeland and should be exempt from American taxes. This filing takes into account your permanent home, personal belongings, family, social, political, cultural and religious affiliations. Your driving license and place you vote at is also considered.
If you plan to either rent out or sell your U.S. property, you will be required to file a U.S. tax return. U.S. rental income has to be included in both your U.S. and Canadian tax returns. If you sell your property in the U.S., you will be subject to tax withholdings of 10 to 15 per cent of the proceeds.
Keeping your documentation with you is essential, and you must be able to prove your Canadian citizenship. Apart from your passport and a copy of your Canadian tax returns it is also crucial to have with you other proof of citizenship such as utility bill, mortgage agreements etc. Your travel itinerary and return tickets too should be available on hand if applicable.
Consequences back home
Health care is one of the significant consequences of staying away for a long duration; remember that if you lose your residency status, you also lose access to your provincial health care. Another result of losing your residency is that the CRA will make you pay taxes on capital gains as it will deem you to have sold off all your assets. If you own property in Florida or other U.S. states, upon death, there is a federal and sometimes even a state inheritance tax which has no capital gains exemption. Another critical fact to remember is that if you stay in the U.S. for six consecutive months without a visa, you could be barred from re-entry for 3 to 10 years.