New Rules For Canadian Travellers?

There are new rules for Canadian travellers visiting the United States for extended periods.

Both countries, Canada and the U.S., will monitor the across-border travels of citizens.

And what’s driving the changes? MONEY. Simple as that. Both of our countries are trying to come to grips with increasing governmental spending and revenue streams that are not keeping up with the demand for tax dollars.

So, how do governments get more money? They tax people. And how will the government of the U.S. tax Canadians? By changing the rules so that, if you are in the U.S. for a certain number of days – accumulated over a number of years – the U.S. government will presume that you have “substantial presence” in the U.S. and if it turns out that due to your Snowbird travelling you do, the U.S. government will try to charge a Canadian income tax.

Canadian and U.S. flags - www-canadian-snowbird.com

6 Months is the norm right now!

Under present regulations, Canadian snowbirds can reside in the U.S for about 6 months (182 days) total each year. Those numbers of days can be one long trip, like us snowbirds take, or an accumulation of trips totalling 182 days in one calendar year.

Canadian Province Regulations

This allowable time in the U.S. has nothing to do with what your Province indicates is necessary to continue to receive Provincial benefits as a Canadian. Those are separate issues. You must know how long your Province lets you out of that jurisdiction before you might be penalized by loss of privileges. What we are talking about here is specifically how the U.S. is changing the rules to try to generate revenue for themselves.

The U.S. Substantial Presence Test

How long can you be in the U.S. in one year before Uncle Sam decides you are ripe for tax dollar plucking? You  need to understand and use the “substantial presence test”.

The following is copied directly from the U.S. government’s Internal Revenue Service website:

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
  1. 31 days during the current year, and
  2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
    • 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.
Example:
You were physically present in the United States on 120 days in each of the years 2010, 2011, and 2012. To determine if you meet the substantial presence test for 2012, count the full 120 days of presence in 2012, 40 days in 2011 (1/3 of 120), and 20 days in 2010 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2012.
Days of Presence in the United States
You are treated as present in the United States on any day you are physically present in the country, at any time during the day. However, there are exceptions to this rule. Do not count the following as days of presence in the United States for the substantial presence test.
  • Days you commute to work in the United States from a residence in Canada or Mexico, if you regularly commute from Canada or Mexico.
  • Days you are in the United States for less than 24 hours, when you are in transit between two places outside the United States.
  • Days you are in the United States as a crew member of a foreign vessel.
  • Days you are unable to leave the United States because of a medical condition that develops while you are in the United States.
  • Days you are an exempt individual.
For details on days excluded from the substantial presence test for other than exempt individuals, refer to Publication 519, U.S. Tax Guide for Aliens.

 Clear as mud?

Using the formula above, if you are present in the U.S. for more than 180 days total (based on the accumulation over this and the last two years) during this calendar year, you could be liable for payment of tax to the U.S. government.

Are you exempt?

Uncle Sam’s IRS department offers some exemptions. They are noted below, and are copied directly from the IRS website:

Exempt Individual
Do not count days for which you are an exempt individual. The term “exempt individual” does not refer to someone exempt from U.S. tax, but to anyone in the following categories who is exempt from counting days of presence in the U.S.:
  • An individual temporarily present in the United States as a foreign government-related individual
  • A teacher or trainee temporarily present in the United States under a “J ” or “Q ” visa, who substantially complies with the requirements of the visa
  • A student temporarily present in the United States under an “F, ” “J, ” “M, ” or “Q ” visa, who substantially complies with the requirements of the visa
  • A professional athlete temporarily in the United States to compete in a charitable sports event
If you exclude days of presence in the United States because you fall into a special category, you must file a fully-completed Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition (PDF).
 
Closer Connection Exception to the Substantial Presence Test
Even if you passed the substantial presence test you can still be treated as a nonresident alien if you qualify for one of the following exceptions;
  1. The closer connection exception available to all aliens. Please refer to Conditions for a Closer Connection to a Foreign Country.
  2. The closer connection exception available only to students. Please refer to The Closer Connection Exception to the Substantial Presence Test for Foreign Students and Sample Letter.
References/Related Topics

 What to do?

Well, you have to do the math, or get someone to do it for you.

If it turns out that your time in the U.S. may be approaching what they deem “substantial presence”, then you will want to submit the form 8840 as soon as possible.

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Jean Forgues
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Jean Forgues

If we have to pay income tax in the US by being there for more then 180 days, on what is the amount of tax bast on, as we have no income in the USA?

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