Tips – and warnings – for snowbirds preparing to take flight – BNN Bloomberg

The mornings are colder and the leaves are turning, meaning it’s almost time for Canada’s snowbirds to take flight to warmer climes.

According to a 2023 snowbirdadvisor.ca report, 85 percent of the more than one million Canadians who spend their winters abroad settle in the United States.

If your destination is the United States, it’s important to know that Uncle Sam is watching you.

“Substantial presence” formula

It’s been a decade since the implementation of an information-sharing agreement between Canada and the United States aimed at collecting untapped tax revenue from Canadians who spend significant time in the United States.

Since the signing of the tax pact in 2014, a growing number of Canadians have been blindsided by unexpected tax bills, penalties or worse from the Internal Revenue Service (IRS).

The tax treaty attempts to determine which side of the border Canadians are on for tax purposes through a complex “substantial presence” formula proposed for the IRS. If snowbirds spend more than 182 days in the United States based on a three-year rolling average, they may be taxed as U.S. citizens.

Any number of days less than 183 means Canadians are not “substantially present” in the United States and are not required to pay taxes.

The consequences can be costly

If you spend too much time in the United States without proper immigration status, you are considered an illegal alien. If you are arrested, you could be permanently banned from the country.

Other undesirable consequences on both sides of the border could include:

• Be considered a U.S. resident and subject to U.S. income tax in any country
• A CRA departure tax. If a Canadian is no longer considered a resident, they are deemed to have disposed of all their assets and must pay tax on any gains from those assets.
• Loss of provincial health care
• If you die, you may be subject to U.S. estate tax

Those who fall under the IRS’s 183-day count and are considered not “substantially present” would not be required to pay U.S. tax, but they must file a “Closer Connection Exemption Statement » (Form 8840) with the IRS to establish that they are more closely related. connected to Canada.

Snowbirds who are unsure where they stand on tax sharing should consider speaking with a qualified tax professional.

Objective on rental income

About half of Canadian snowbirds in the United States own real estate, according to the snowbirdadvisor.ca report.

The information-sharing agreement was likely driven by an influx of Canadians buying rental properties in the United States following the 2008 housing crash, when high oil prices pushed up the purchasing power of the Canadian dollar at more than US$1.10.

There is no precise figure on how much rental income Canadians generate in the United States, but the treaty gives the IRS the means to find out.

Uncle Sam is watching

Many Canadians are unaware that the IRS has access to their personal information, including the location of their permanent residence, family members, driver’s license and business activities. Personal information available to US tax authorities also includes where they vote, as well as their social, political, cultural or religious affiliations.

In 2016, Canada’s Privacy Commissioner – who advises individuals on the protection of personal information under federal privacy law – expressed concerns. The privacy watchdog recommended that the CRA inform data subjects when and why their data is provided to the IRS.

Under the Privacy Act, general consent is required for the disclosure of personal information, but also includes exemptions allowing the disclosure of personal information without consent.

The Privacy Commissioner says Canadians can also contact the CRA directly to find out what information has been shared with U.S. authorities.