It’s not too often that an article on snowbirding in the United States takes a sentence to remind Canadians of a certain age to be mindful of their assets in terms of taxes and estates, but an article in today’s National Post does just that very thing.
Too often Canadian retirees are enticed south of the border with misinformation that can land them, or their heirs, in US tax hell, and I wouldn’t say that the following advice is the most strongly worded I’ve seen, but it’s good practical advice anyway.
A snowbird making a habit of spending several months a year in Florida or another U.S. state needs to take legal advice on consequences of the U.S. residence and may trigger the U.S. significant presence test for tax liability and questions of permanent domicile.
While there is no mention of banking or investing issues to be aware and wary of, reminding folks that the US government has different ideas about residence for tax purposes that can have an impact on their wills and their estates is as good a place to start as any.
And just for comparison purposes. I stumbled on the reverse situation via a WSJ article that was linked on the Americans in Canada Facebook page.
http://www.irs.gov/Individuals/International-Taxpayers/Conditions-for-a-Closer-Connection-to-a-Foreign-Country
If you spend fewer than 183 days in any calendar year in the US AND can demonstrate that your real home is elsewhere, you can avoid the “substantial presence test”.
There are enough things to be frightened by – this needn’t be one of them.
I think the Post was looking at it from more of a will stand point than a pure yearly income tax one and that is something to be concerned about as will’s are sometime not recognized outside their countries of origin – according to my lawyer.
Also, the last thing you want your widow, or your children to have to deal with is the IRS demanding proof of “closer ties”. Who knows what that could do in terms of eating time and making probate more unpleasant.
I’ve had quite a few Canadian clients trapped by the substantial presence test.
Definitely one that can creep up on you.
Most are aware of the 183 day rule, but the SPT is easier to miss.
Phil
Canada Pension Plan just bought a failed department store in the United States. Heaven help us.
http://business.financialpost.com/2013/09/09/cppib-close-to-deal-to-buy-neiman-marcus-for-6-billion/
And one wonders why the government of Canada is bending over backwards to comply with laws made in DC? Here goes another 6 billion of Canadian pensioners’ money to bail out the banks who loaned money that Neiman-Marcus couldn’t pay back. Must be nice. Why are we even complaining about citizenship based taxation? It is small cookies compared to this.
I generally ignore 99% of the stuff written here that is inaccurate This is an important issue.
If you stay 120 days or more on average the closer connection info require all world income and assets infor like Facta.
If you rent your Canadian home out during your time away you will be in trouble. They do not look at where your income is coming from.
Snowbird are important to US economy as they are negative positive to the economy unlike 75% of the US citizen. They bring in more money they cost. They pay property and sales taxes without costing US government anything. If Issac Brock Society had any sense they would try and use to this to tampen down the IRS.
A little bit of knowledge about the closer connection test can be dangerous. As indicated by the information found by clicking on the link provided by Kingofthe Road, for reasons known only to the Government, there’s an extraordinarily punitive rule, which says that you have to file IRS Form 8840 to claim closer connection. Otherwise, unless you meet a very stringent exception, you lose the ability to claim you’ve got a closer connection to Canada. Be careful with this one. See quoted language below.
“Requirement to File Form 8840
If you do not timely file Form 8840, Closer Connection Exception Statement for Aliens (PDF), you cannot claim a closer connection to a foreign country or countries. This does not apply 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.”
@Michael Miller
Thank you – I am sure you are right!
For clarity:
(a) is there any equivalent to Form 8840 that one needs to be aware of, in the event of exceeding 31 days in the US during a calendar year?
(b) or, ditto, if one spends up to 120 days (on average) in the US?
(c) is Form 8840 relevant only if one exceeds 183 days during a year?
@KingOfTheRoad, you’re welcome. I’m happy to chip in. As for your follow-up questions, the answers are as follows:
(a) There is no equivalent form that must be filed merely by reason of exceeding 31 days, provided that the total number of “days” over the three-year period (counting each day during the year tested as a full day, each day during the preceding year as one-third of a day, and each day during the second preceding year as one-sixth of a day) is less than 183.
(b) If you never exceed 120 days, you’ll never reach 183 days over the three-year period under the formula set forth above, and thus will never need to file Form 8840. But a word of caution about averaging 120 days. You can average 120 days and still end up a resident. Consider, for example, if you’re at 0, 120, and 150 days for years 1, 2, and 3, respectively. Unless the closer connection exception applies, you would be a US resident under the substantial presence test in year 3, even though the average is only 90. Under the quirky formula above, the math would be 150 + 1/3 * (120) = 150 + 40 = 190. Also, keep in mind that a part of a day is simply a day. So, arriving in the US at 11:59pm on Friday and leaving at 12:01am on Sunday, i.e., 24 hours and two minutes later, counts as three days.
Oh, and to address the third question, Form 8840 ceases to be relevant if you’re in the US for 183 days (or more) during the year at issue, because in that case you clearly can’t qualify for the closer connection exception. So, the exception is relevant when you’re at 183+ over three years, under the formula set forth in my prior post, but at less than 183 for the year at issue. Note also that under the three-year formula, you’re not a resident if the number of days in the US during the year at issue is less than 31. This is fairly unsual, and certainly not applicable to snowbirds, since you’d need to be in the US for nearly all of the two preceding years for this “31-day rule” to make any difference.
Thanks for all the clarification, Michael.
I Guess that means SNOWBIRDS are going to flock to British Columbia instead… 🙂
From Zoomer Travel (CARP related): Canadian Snowbirds Get More Days in the Sun
My comment (the only one so far) is in moderation.