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Are You a Snowbird? You May Need to File Income Tax Returns

June 9, 2014
Category :  Articles

If you spend time south of the border, you could be subject to US income tax.

US requirements

Being physically present in the United States for at least 183 days qualifies you as a snowbird, which means that the US government considers you a resident for tax purposes. The test used to determine this is commonly known as the Substantial Presence Test. If you were physically present in the United States for less than 31 days during the 2013 calendar year, this test does not apply to you and you are not subject to US income tax.

Number of days of presence in the United States Multiplied by
In 2013 1
In 2012 1/3
In 2011 1/6
Total days of presence  

 

For example, Matthew spent 110 days in the US in 2013, 150 days there in 2012 and 180 days in 2011. Applying the Substantial Presence Test, Matthew is considered to be a US resident, because the cumulative total is more than 183 days (190 days (110 + (150/3) + (180/6)). If, for three consecutive years, you do not spend more than 120 days a year in the US, you are not considered a US resident under the rules because the cumulative total is less than 183 days. So, you would not be subject to US income tax.
Should you pass the Substantial Presence Test, you may still be treated as a non-resident for US tax purposes under the Closer Connection Exception. You would not be subject to US tax if you:

  • Are present in the United States for less than 183 days during the calendar year;
  • Have maintained a closer connection with another country;
  • Have filed an income tax return in your country of residence.

When you meet these three (3) conditions, you must complete Form 8840 to prove to the US government that you maintain a closer connection with another country. Once the form has been filled out, you are no longer subject to US income tax. It is important to note that the form must be completed and received by June 15 of the following year. The form will not be accepted beyond this date. After the deadline, you would be required to file a US income tax return by completing Form 1040NR (equivalent to the T1 in Canada). You must attach a request for exemption under the tax treaty (Form 8833). The same procedure applies in the event that you do not meet the criteria for the Closer Connection Exception.

If you do not file your return by the due date, you will be considered to be in default by the US Internal Revenue Service (IRS) and liable for interests and substantial late payment penalties for failing to file a tax return. There is a decision tree on the final page of this document that may be helpful in determining which form you need to fill out.

Canadian requirements

As a Canadian resident, you are required to file an annual tax return, declaring all your worldwide income. You are also required to file Form T1135 when you hold foreign property with a total cost amount exceeding $100,000.
The Canada Revenue Agency has issued a list of property to be included on the form. This property is called ‘specified foreign property’. It includes foreign bank accounts, rental property, indebtedness owed by non-residents other than from foreign affiliates, shares of non-resident corporations held by a Canadian resident personally or through a broker. Shares in a foreign corporation held in an RRSP or Canadian mutual funds are excluded. Personal use property, namely, property whose primary purpose is personal use and enjoyment, is not included in the list of specified foreign property.

Failure to produce the form may result in significant penalties. If in doubt, the best approach is to submit the form before the deadline and to contact your FBL expert.

The impact of leaving the province while on your Québec Health Insurance Plan

Did you know that if you are outside Québec for more than 183 days in the same calendar year, you lose your coverage under the Québec Health Insurance Plan (Régie de l’assurance maladie du Québec – RAMQ) for the entire calendar year in question? Furthermore, if you received services paid for by the Régie, the cost of those services must be reimbursed.
When calculating your absences, take into account only the times when you were outside the province for more than 21 days. For instance, if in the 2013 calendar year you were in the US from January 3 to June 30, the Régie will calculate 175 days, namely, January 4 to June 29 inclusive. If you then decide to take a two-week holiday in France from September 15 to 30 that same year, the Régie will not take any of that time spent outside the province into account because you were away less than 21 days. So, you would still be covered by the Régie for 2012 ?
There are other exceptions allowed under the RAMQ, for example:

  • Students registered at an educational institution;
  • Persons who occupy temporary jobs or who are working on contract outside the province;
  • Employees of a corporation or organization in Québec who are working on contract for their employer outside Québec;
  • Government of Québec employees or civil servants working on assignment outside Québec.

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Please contact your FBL expert for further information in this regard.

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