Travel to the US Frequently? Must Read Tips to Avoid Tax Troubles
For many people, retirement means spending a lot of time in the sun or on a beach. And if you’re Canadian, that often means spending winters in the southern United States. However, snowbirds need to be aware that there are very strict rules and guidelines about remaining a Canadian citizen under the eyes of the government.
Why does it matter?
If you are a Canadian citizen, it is important that you ensure you are still considered a Canadian citizen in the eyes of the Canadian and US governments for several reasons:
- Only Canadian citizens have access to free healthcare
- If you are considered a US citizen, you will have to pay taxes on your worldwide income to the United States government
- If you are considered a US citizen, you will have to pay taxes on your worldwide assets at death to the United Stated government
So what do I need to know?
While in the past many people have been more lax about how many days they are spending south of the border, the Canadian government has recently become far more stringent, and it’s important that you follow the rules.
For Canadian citizens, one can spend as many as 182 days south of the border per year and still be considered a Canadian citizen in the eyes of the government.
However, if you go down to the United States every year, it is important to note that the formula to calculate your time in the United States is different, and you are actually allowed 120 days per year over a three-year period.
Additional information
For Canadians who are looking to spend more time than their allotted 120 days, there is a silver lining. You can extend your stay in the US by 42 days (up to 182 days) by filling out the Closer Connection Exception Statement for Aliens (form 8840) and filing that with the Internal Revenue Service.
Essentially, the form asks you to prove that you have closer connections to Canada than you do to the US, by showing that your primary residence, family and bank are all located in Canada. Note that if you plan to fill out this form, you must do so every year that you spend time in the United States.
It’s also important that you keep a record of your time spent in the United States in order to ensure that you are never going over the limit, as penalties for infractions could include being banned for anywhere from three to ten years.
If you plan accordingly, and do your due diligence, there is no reason why you should have to worry, and instead you can enjoy the sun in the US!
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