Canadian Group – Continued
There are currently some 85 Canadians living for part of the year at VillageWalk of Bonita Springs. That’s 3% of the VillageWalk population!
65% are from Ontario
20% are from Quebec
For email and telephone numbers, log into the Residents Login page on this website
In the past, members of the group inquired about minimizing US income tax and US estate tax. One trans-border firm running no cost seminars in Naples is The Canadian Estate Planners Inc., Caledonia, Ontario 800-267-5956 Canadian Estate Planners email@example.com. Another firm is Keats Connelly but their focus is higher wealth families
Periodically, there will be a get-together for Canadian residents. Typically, a representative of the Canadian Snowbird Association is invited to address the meeting. The Canadian Snowbirds Association (http://www.snowbirds.org) is dedicated to improving the rights and privileges of all Canadian travelers and has been active for years in lobbying the US and Canadian governments on behalf of Canadian snowbirds. These talks address the many products and services of interest to Canadian snowbirds, including alerts on US taxation issues.
The Canadian Group is loosely organized by Frank Kearney 239-495-1615 or 519-471-6154
US Immigration Rules
There is a great deal of confusion regarding how long a Canadian entering the United States under a B-2 visa (the usual verbal visa granted by a US border official to Canadian non-business visitors) can stay in the United States. Firstly, the individual border official has the discretion to interpret the regulations in whatever reasonable way, he/she wishes. Secondly, there is no clear statement concerning the calculation of the maximum time that Canadians have to visit the United States. While some people have been under the impression that they can be in the US for 182 days per calendar year, that is not the case. It appears that the period of time is half a year less a day (so 182 days) in a rolling 12 month period. Where this gets tricky is when a Canadian leaves the United States for a week at Christmas, for example. Some border officials will say that the absence does not count if it is less than 30 days (this belief comes from wording on the question and answer web page for visitors from countries other than Canada and Mexico traveling to other countries while in the U.S. on a B1 or B2 visa. After consulting with the Canadian Snowbird Association, it would appear that the situation is vague and, as stated earlier, subject to the discretion of the border official that interviews you.
Residency Rules Canadian Snowbirds Need to Know, from an article by Michelle Munro in November 16, 2011 (Michelle Munro is director, tax planning, for Fidelity Investments Canada ULC. Originally published on Advisor.ca)
Avoiding Canadian winters by heading to the warmer climate of the southern United States has long been a common goal for Canadian retirees. These snowbirds look to enjoy the warm weather while maintaining their Canadian ties. For many it’s a great way to spend a part of their retirement, as long as they are aware of the potential tax consequences. Many of them are just like the parents of my friends, a healthy sun-seeking couple named Mary and James. They’re well-to-do and readily able to afford a few months in Florida’s warmth, and they think they have all the knowledge they need to avoid any tax or financial pitfalls that may be caused by their extended time in the U.S. At a gathering recently, James confidently told me he and Mary have no fears that their sojourn down south will cause them to be considered as U.S. residents for tax purposes. He and his wife hold to the conventional wisdom that says if you spend fewer than 183 days in the U.S., the Internal Revenue Service will leave you alone. He seemed a bit surprised when I told him that he had fallen into a common misconception about U.S. residency requirements. The reality is more complicated than staying under the 183 day barrier. U.S. visitors like James are subjected to what the IRS calls a ‘substantial presence’ test to see if they will be deemed to be U.S. residents for tax purposes. Indeed, you may well have clients just like James, people in need of some useful advice about the intricacies of U.S. residency requirements before they head for the border.
What makes a U.S. resident?
Anyone who meets the IRS’s substantial presence test will be considered a U.S. resident and will therefore have to comply with certain U.S. tax laws. That’s the simple reality. The test itself, however, is a little more complicated, making it essential that Canadians who plan to stay in the U.S. for extended periods count their days carefully to ensure they don’t go over the threshold. The first thing your clients need to know is that the IRS has its own definition of what constitutes a day, and it isn’t necessarily 24 hours. For the purpose of calculating residency, a day can be any part of a 24-hour-period in which an individual is physically on U.S. soil. So, for example, an early morning trip to the airport for a flight back to Canada would count as a full day (not a partial day) in the calculation. Given this caveat, the IRS imposes its substantial presence test this way: you qualify as an U.S. resident for tax purposes if you have been physically present in the U.S. for 31 days during the current year, and for 183 days on a weighted average basis in the three years that include the current year and the two preceding years. Here’s where the calculation becomes a bit more complicated for your clients (and allows a bit of leniency for taxpayers). To arrive at that three year total, the IRS allows them to add the number of days they were in the U.S. during the current year to one third of their total U.S. days in the previous year and one sixth of their U.S. days the year before that. If the total is less than 183 days, generally residency isn’t established. If it’s 183 days or more, your clients could have a problem. As an example, let’s assume that James will spend 120 days in the U.S. this year, and that he spent the same number of days there in each of the preceding two years. His calculation under the substantial presence test for the three years will then be 120 plus 40 (1/3 of 120) plus 20 (1/6th of 120) for a total of 180 days. He won’t qualify as a U.S. resident. Of course, had James spent an extra 10 days in the U.S. last year, he would have incurred an extra three days under the formula. That would have pushed him to the 183-day threshold, making him a U.S. resident for tax purposes.
Closer connection exception
Even if James meets the substantial presence test, he can still avoid being labeled a U.S. resident by filing a Form 8840 with the IRS. This form has the coldly cumbersome name “Closer Connection Exception Statement For Aliens.” James can complete this form if he was present in the U.S. for fewer than 183 days in the current year, can establish a tax home in Canada in the current year, and can establish a closer connection to the tax home in Canada than to the U.S. By filing this form, James would still be considered a non-resident of the U.S. Form 8840 asks James a barrage of questions to support his claims that his personal, social and economic ties in the latest tax year are closer to Canada than to the US. The IRS wants to know the location of his permanent home, where his family resides, where his automobile is registered, and where he keeps his personal belongings. Among other things, the form also asks where he conducts his banking relationships, where his driver’s license was issued, where he is registered to vote, and the locations of personal, financial and legal documents. The form even requests the location of investments and whether James qualifies for any type of national health plan sponsored by a foreign government. About the only thing it doesn’t want to know about is information about his birthmarks. As intrusive as it may sound, Form 8840 has to be filed with the IRS by June 15 in the year following the year in which the substantial presence test is met. If James doesn’t file on time, he may not be eligible to claim the closer connection exception and may be treated as a U.S. resident. As well, he could also face other penalties.
The tax treaty ‘tie breaker’
If James spent 183 days or more in the US then he cannot complete Form 8840, however, James may still be able to avoid being considered a U.S. resident under the Canada – U.S. Tax Treaty. To avail himself of what is commonly known as the ‘tie breaker’ rule under the treaty, James will have to fill out IRS Form 8833, “Treaty-Based Return Position Disclosure.” The disclosure required in this case is much more rigorous and complicated than on the ‘Closer Connection’ form. In fact, James would be well advised to seek out a tax expert who specializes in this area. Like the ‘Closer Connection’ form, the ‘Treaty Position’ form must be filed with the IRS by June 15 in the year following. Failure to file on time could make James ineligible to claim the treaty position and he might then be treated as a U.S. resident. And again, other penalties could be assessed. As you and your clients are no doubt aware, there have been numerous stories in recent months about the efforts of the IRS to have delinquent U.S. tax filers get their returns up to date. Against the backdrop of U.S. deficit and public debt woes, the IRS naturally is seeking to expand tax revenues wherever possible. That makes it imperative that your clients stay within the residency rules. Many clients will benefit
It’s very likely that there are many James’ in your client lists. As an advisor, you can be of great assistance by making them aware of U.S. residency requirements for tax purposes and, above all, explaining them to ensure that they don’t inadvertently fall offside. Once they understand the potential pitfalls, they’ll be grateful that they’ve avoided a US tax filing, or worse, a US tax liability.
House Closing Checklist
A house closing checklist was prepared by members of the Men’s Coffee Group and may be helpful to you in ensuring that you do all reasonable things before heading back to Canada. The biggest challenge is to ensure that you protect your home against mold and mildew from the high humidity levels and high temperatures in the summer time.
Interesting Organizations to Join
- Canadian Snowbirds Association (particularly focused on issues for snowbirds in the US)
- American Association of Retired Persons
- Canadian Association of Retired Persons
These organizations, especially the first one listed, provide useful information and are inexpensive to join.
Income Tax Issues
If you are renting your home at VillageWalk to others, you will need to get approval from the VillageWalk of Bonita Springs Homeowners’ Association. As well, you should seek income tax advice as the rent will be income earned in the United States. The taxation issues may not be worth the hassle associated with renting.
If you’re in United States for a significant period of time, you may also wish to check out the possibility of filling in the form 8840 [Internal Revenue Service]. Canadian Snowbirds Association has further information (see above)
If you are a wealthy individual, with significant US holdings, check with a Chartered Accountant who specializes in cross border taxation, especially estate tax. The United States has estate tax, with some “credits” for beneficiaries who are not US citizens. See the KPMG article which addresses this subject (note these laws are under review by Congress)
You will want to check with your provincial government agency which handles health insurance to find out how long you can be away from your province before putting your Medicare coverage in jeopardy. For Ontario residents, you may be at risk if you are not resident in Ontario for 153 days or more per calendar year.
Top Up Health Insurance
Health insurance is unique to each individual, but here are a few possibilities:
– a number of Canadians use Medipac, available at group rates from the Canadian Snowbirds Association (http://www.snowbirds.org)
– Manulife 80 has an extensive questionnaire, but guarantees coverage after qualifying once to age 90
Some insurance companies require an additional policy amendment to cover your auto for extended stays in Florida. Check with your insurance agent as not all carriers offer the same coverage.
In Florida, it is usually advisable to have both home insurance and flood insurance on your Florida home so that you are not caught uninsured in the event of water damage. Liability insurance is also worth discussing with your insurance agent…
You will also want to check with your Canadian insurance agent regarding the steps you must take to maintain your coverage while you are absent from the home. Typically this requires the home to be checked every three or four days.by a friend or neighbor.
You may want to consider getting a US dollar credit card from your Canadian bank or a local US dollar credit card. Almost all credit card companies charge at least a 2% surcharge on “foreign” transactions.
The Men’s Coffee Group has a wealth of information about various service providers, medical practitioners, etc. – check elsewhere on this website.
In the lobby of the Town Centre and at the Post Office there are business cards for VillageWalk owners who are in business to supply services to those in the community.
New Residents Welcome
A Cocktails and Conversation get together is scheduled periodically in the Town Center. Established residents will be available to answer any questions on activities, resident businesses, and local attractions. If you have never attended one of the New Resident coffees before, please check the Talk of the Walk for dates and times.