Staying onside when you’re stateside: regulatory reminders for Canadian snowbirds

This winter’s extreme cold has undoubtedly led some Canadians to consider spending more time in the southern parts of the United States. If you’re spending the winter months down south, you’ll need to be mindful of a few things to ensure you’re onside with regulatory requirements and avoid paying any unnecessary fees. Here are a few reminders.

Health insurance

While in the U.S., there is always the possibility that you may end up needing to avail yourself of its medical services, so it’s advisable to purchase travel medical insurance before you go. Your provincial or territorial healthcare plan can cover some of the costs associated with medical procedures but does have its limits. In Ontario, for instance, it will only cover out-of-country medical expenses if you have lived in the province for more than six months and are away for less than 212 days in any 12-month period.

Income tax

If you’re spending more and more time south of the border, you could be obligated to file a U.S. income tax return. However, if you can prove that you have a closer connection to Canada than the U.S., you can avoid this filing obligation. The Substantial Presence Test that is applied by the IRS determines whether a person who is not a citizen or permanent resident still qualifies as a “resident for tax purposes” or a “non-resident” for tax purposes.

You will be considered a resident for tax purposes if you have spent 31 days in the United States in the current year, and if the following formula adds up to 183 days.

–  All the days you were present in the current year, and
–  1/3 of the days you were present in the first year before the current year, and
–  1/6 of the days you were present in the second year before the current year.

For example, if you spent 100 days in 2017, 180 days in 2016 and 180 days in 2015, you would calculate the number of days as follows: 100+1/3*180+1/6*180=190. If this number were less than 183 days, there would be no reason to file a U.S. tax return. In this case, where the number of days is more than 183, you can avoid filing a U.S. tax return, so long as you can prove that you have a stronger connection to Canada than to the United States. Form 8840 – Closer Connection Exception Statement for Aliens must be filled out and sent to the IRS by the due date for form 1040NR (typically, June 15).

U.S. real estate

If you spend your time in the U.S. staying in a property that you’ve purchased, your estate may have to pay U.S. estate tax when you die even if you are not an American citizen. Your estate could be liable for U.S. estate taxes if it contains U.S. situs assets, such as property or U.S. stocks or bonds. If the value of these assets is less than $60,000 USD, your estate will not be liable for the tax regardless of the value of your worldwide holdings. As of January 1, 2018, if you do have U.S. situs assets with a value of $60,000 or more but your worldwide estate is less than $10 million, your estate will not have any U.S. estate tax exposure.

Wills and Powers of Attorney

If you spend a substantial amount of time in the U.S. and own significant property there, you should consider having dual wills. A will created in Canada which distributes assets in the U.S. may or may not be valid there, depending on whether the will is accepted pursuant to the laws of the state where your property is located. Your U.S. will should be prepared so that it does not conflict with your Canadian will.

In addition, you should have U.S. Powers of Attorney for Healthcare and Property drawn up in case you are incapacitated while you are down south. Consult a lawyer who has expertise in both Canadian and U.S. estate law when having your dual wills and Power of Attorney documents prepared. They should be well versed in the latest changes to any legislation that could affect you.

If any of these reminders have prompted you to wonder whether you’re fully onside with these issues, ask your financial planner or advisor. They can help put your mind at ease so you can relax and enjoy your little winter nest wherever your wings take you.

Marcy Ages, Vice President & Consultant
T.E. Wealth, Toronto

This article was published in T.E. Wealth’s Strategies newsletter, March 2018 edition. Read the full edition here.

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