Snowbirds: Tax Residency Under Scrutiny at Border

Starting July 1, 2014, Canada and U.S. border authorities will now scan your passport when you enter and exit their country to determine how long a person has actually been out of their country of residence in a given year.

Once U.S. and Canada have access to a day count for everyone, both countries can track a person’s physical presence and use it to apply various immigration and tax laws.

For U.S. tax purposes, you can be deemed a resident if you are present in the U.S. for 183 days in the current calendar year or 183 days over a 3 year period. This is done by counting 100% of the days in the current year, plus 1/3 of the days in the first preceding year and 1/6 of the days in the second preceding year. Even if you meet one of these tests, you can claim closer ties to Canada, exempting you from deemed residency treatment. 

Unfavourable tax consequences can result if you are no longer considered a Canadian resident. This topic is discussed in more detail in the upcoming book, Canadians & the IRS: What You Need to Know about Uncle Sam.

Snowbirds should also be aware of the U.S. immigration rules which are slightly different than U.S. tax rules regarding residency. The 183 day tax rules cover a calendar year, whereas the immigration rules state that a non-resident cannot legally spend more than 182 days in the U.S. over a rolling 12 month period. 

For example, if you, as a snowbird, chose to spend October to March in the U.S., come back to Canada for the spring and summer but then return to the U.S. prior to the following October, you will be in the U.S. illegally. Even if you returned to Canada for a few days between October and March, the immigration clock does not turn off unless you spend enough time in Canada (minimum two week period); U.S. immigration still considers you to be present in the U.S. and merely ‘visiting’ Canada. You can be barred from the U.S. for a number of years if caught in the country illegally.

You would also be caught under the substantial presence test and therefore deemed a U.S. resident for tax purposes unless you can claim closer ties to Canada.

Angela Preteau is an employee of Frostiak & Leslie Chartered Accountants in Manitoba and specializes in Canada/US cross-border tax advisory and compliance services for all clients. She is also the author of the Cross Border Taxation course available through Knowledge Bureau.