Tax Considerations for Canadian Snowbirds

If you plan to spend your winters in the US, then you should be thinking about more than whether or not your passport is up to date.

“Snowbirds” are Canadian residents who spend part of each year in the US. They need to be aware of the potential requirement to file US income tax returns and provide information about their financial assets to the IRS, just like US residents or US citizens.

US citizens and residents of the US must report worldwide income on their US income tax returns.. Even though you may only visit the US for a few months every year, there is potential you can be considered a US resident for US tax purposes. This may result in you having US individual income tax filing and information reporting requirements similar to those for US citizens or residents.

How might this happen? You would be considered to be a US resident for US income tax purposes, if you meet the US Substantial Presence test. I’ll explain what the Substantial Presence test is but if you need more information you should consult with your tax advisorand you can also visit the IRS website at IRS.gov.

In order to determine whether or not you meet the substantial presence test in the current year, you need to look at the total number of days you spend south of the border in the current year, add  one-third of your  U.S. days from the previous year and one-sixth of the total days spent in the US from two years prior. If the sum is equal to or greater than 183 days AND you spent more than 30 days in the US in the current year, then you have met the US Substantial Presence Test and you are considered to be a US resident for US income tax purposes for the current year.  As a practical guide, you will not meet the substantial presence test if you are in the US for less than 120 days each year.

However, even if you meet this test but were in the US for less than 183 days during the current year, you may demonstrate that you have a closer connection to Canada and be treated as a non-resident of the US by completing the IRS Form 8840, also known as the “Closer Connection Exception Statement for Aliens” and submitting this form to the IRS.

If the information you provide on the Form supports your closer connection to Canada, then you will not be treated as a US resident for US income tax purposes and you will not need to comply with US income tax filing obligations.

On the other hand, if the days you spent in the US was 183 days or more in the current year, you will not be eligible to claim that you have a closer connection to Canada by filing this, and you will have to consider relying on the “tie breaker” rules in the Canada-US Tax treaty to claim that you are a resident of Canada.

The main take-away is that if you are planning to travel to the US on a regular basis, keep a record of your days spent in the US so that you do not inadvertently become a US resident for income tax purposes. If you’re not sure if you meet the substantial presence test talk to your BMO professional and they can help you find a cross-border tax advisor to meet your needs.

The comments included in the publication are not intended to be a definitive analysis of tax law. The comments contained herein are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.

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