Canadian Snowbirds in the USA

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In this 50 Plus Forums dialogue, several issues were identified that are not well-known among Canadian snowbirds.

QUOTE(wallace @ Jul 21 2007, 07:37 PM) *

It appears that "The Internal Revenue Service" mandates that if you are a foreign national and you spend more than 182 days in total,in the U.S.A. during a given year you MUST file tax forms with the IRS. Failure to follow these rulers could get individuals into a very messy tax situation. Typically Canadians are allowed to remain for no more than six months out of a given year, usually interpreted as 182 days.

The IRS says the rule is: (current year stay in days) + (previous year stay)/3 + (year before stay)/6 = 182
http://www.hrblock.ca/your_life/snowbirds.asp
That works out to 122 days if you go every year for the same amount of time. And if you go at another time for a weekend shopping trip, those days also count into your total. The improved border systems resulting from Homeland Security will now enable them to enforce these laws for the first time.

If you exceed this limit, then you have to file a US tax return. The main issue is that your Canadian RRSP/RRIF is not tax-exempt and so any income generated counts as current year income in your US IRS filing. There is an annual exemption granted if you file Form 8891 with your return. But there are other tax implications (e.g. estate taxes). If your worldwide assets are more than $2 million and your US assets are over $60k (all USD), then your estate can be liable for paying in tax 45% of all the US assets over $60K should you die while resident there as an alien. There is no spousal exemption. Now that condos are so expensive in Florida and elsewhere, this can become an issue. If you stay in the US for more than 30 days but less than 183 days, then you must file for an exemption using Form 8840. As it relates to the qualifications, here are a couple of zingers:

QUOTE

For stocks and bonds, indicate the country of origin of the stock company or debtor. For example, if you own shares of a U.S. publicly traded corporation, the investment is considered located in the United States, even though the shares of stock are stored in a safe deposit box in a foreign country.

So in my prior post, I mentioned the $60K US assets rule. But any US stocks and bonds contribute to that total. So just renting your snowbird condo does not necessarily prevent their estate taxes from applying. Also worldwide assets include property, so your principal residence and any vacation properties would be included in the total ($2 Million US limit in 2008), and we all know what has happened to those values lately. To be safe, put a big non-recourse mortgage on your US property, and invest the proceeds in Canadian assets as recommended here. Other avoidance schemes include what the current "unified credit" is according to the Canada-US tax treaty. The unified credit is $780,800 in 2008 and $1,455,800 in 2009. But that treaty needs to be revised when the current estate exemptions expire in 2010. The safest approach is to put all your US assets into a Canadian corporation. If it is just a spousal transfer (i.e. no heirs), then a QDOT might suffice. The tax treaty can be found here, with special attention to Article XXIX B.

I noticed these paragraphs:

QUOTE

If you do not timely file Form 8840, you will not be eligible to claim the closer connection exception and may be treated as a U.S. resident. You will not be penalized if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements.

Now that it has been in The Toronto Star and this board, you have been warned. In other words, ignorance is no excuse.

The other gotcha on the form, is that if you should have filed in 2005, they may want to know about that too. The surprise in all this is that filing can be required if you stay a total of 31 days, and one of those days could be a 2-hour shopping trip to Buffalo or Bellingham! But if you qualify once, establishing your close connection with Canada, then you can stay 182 days in subsequent years. It appears that the best strategy is to apply early long before you are likely to stay more than 122 days in any given year.

There has been an update from CIBC on some of these issues in March 2010. There seems to be no major changes. Source. And here is an article from BDO.Here are two update from 2014:
US Estate Taxes
US Taxes  
There is a good publication which covers all this and more located here:

http://www.cra-arc.gc.ca/E/pub/tg/p151/p151-10e.pdf - Canadian Residents Going Down South


Copyright by Keith Cowan