Tax implications for Canadians traveling to the U.S.

Are you a Canadian snowbird? Make sure you understand the tax implications for Canadians traveling to the U.S.

What are the tax consequences for Canadian snowbirds who visit the U.S.?
Canadian snowbirds who travel to the US, whether for a vacation or an extended stay away from the cold, need to understand that they could face unwanted US tax consequences.

Canadians often don’t think about US tax issues, because they consider their permanent home to be Canada. However, if you spend a considerable amount of time in the US, you could be considered a US tax resident. US tax residents are liable for US income taxes on their worldwide income. US tax residents also have to file foreign reporting forms with the IRS, which carry a penalty of a whopping $10,000 if they are not filed on time.

So how much time is considered a lot for U.S. tax residency purposes?
According to the US substantial presence test, you will become a US tax resident if you spend more than 122 days (or approximately 4 months) in a year in the US.

Assuming that you spend more than 122 days in the U.S., how do you get out of being classified as a U.S. tax resident?
There are two ways:
1. Claim the Closer Connection Exception by filing form 8840 with the IRS. If you can demonstrate that your personal, family, and economic ties are closer to Canada than the US, you will not be classified as a US tax resident.

2. File a US Non Resident Tax Return and claim a treaty-exemption from US income taxes. The exemption can be found on form 8833. The Canada-US treaty basically says that you are a resident in the country where your home is situated and where your ties are closer to.

Here’s the Tip:
If you are a Canadian snowbird, then hire an experienced cross border tax accountant to help you file the necessary paperwork with the IRS. Otherwise, you risk paying US income taxes on your worldwide income.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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