Despite the exchange rate, many Canadian "snowbirds" continue to venture to their home-away-from-home in the U.S. south. However, if you stay for extended periods of time in the United States, you should seek tax advice.

Although individuals may be both Canadian citizens and Canadian residents, they may be considered a U.S. resident for tax purposes if they live south of the border for long periods of time. One determining factor is a "substantial presence" test.

Under U.S. tax laws, an individual is deemed to have "substantial presence" if he or she is present in the U.S. for 31 days in the current year and 183 days or more over a three-year period. In determining the 183 days, all of the days in the U.S. in the current year are included plus one-third of the days in the U.S. in the previous year plus 1/6th of the days in the U.S. in the second previous year. Generally, this test is met if you spend more than four months a year in the U.S.

An individual who meets the "substantial presence" but has spent less than 183 days in the current year in the U.S. will not be considered to be a U.S. resident for tax purposes if the individual can establish a "closer connection" with Canada and has a tax home in Canada.

What is a Tax Home?

The IRS considers a tax home to be the country where the individual reports for work or regularly lives. To establish a "closer connection", the individual needs to establish the location of the permanent home in Canada as well as connections with family, banking and other social and economic ties. Care should be taken to ensure that the individual has a Canadian driver's license...and if municipal, provincial or federal elections are pending, is registered on the voter's list.

A Close Connection, Form 8840

Snowbirds who meet the "substantial presence" rules of the IRS, but are in the U.S. less than 183 days during the current year, should file Form 8840. The form requests the following information:

• name, address, U.S. identification and U.S. visa number (if any);
• indication that a tax return was filed in Canada for the current year;
• facts that support the "closer connection", i.e., closer ties to Canada;
• whether any steps have been taken to obtain permanent resident status within the U.S.;
• the year to which the statement applies (the form may have to be filed each year);
• Canadian passport number; and
• the number of days present in the U.S. each year over the last 3 years.

The due date for filing the closer connection statement with the IRS is June 15th of the following year.

U.S. Residents for Tax Purposes

Snowbirds who spend 183 days or more in the U.S. in a three-year period and do not meet the "closer connection" test must file a U.S. tax return claiming, under the Canada-United States Tax Convention, to be a Canadian resident and therefore, not a U.S. resident. This treaty position is disclosed on IRS Form 8833.

Penalties imposed by the IRS for failure to disclose treaty-based items are harsh.

U.S. Property

Snowbirds who have vacation or retirement properties within the U.S. or spend a lot of time there should talk to LOGAN KATZ LLP Chartered Accountants concerning their status to avoid future difficulties.

The above provides general information only. It should not be regarded or relied upon as accounting or taxation advice or opinions. Logan Katz LLP Chartered Accountants would be pleased to provide more information or specific advice on matters of interest to you.

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