If you are a Canadian who spends winters in the U.S., keeping track of your days in the U.S. is important in order to avoid becoming an “accidental” U.S. resident subject to U.S. tax on your worldwide income.
How long can Canadian Snowbirds Stay in the U.S. without becoming a U.S. Resident?
You will be considered a U.S. resident for tax purposes if the number of days you spend in the U.S. exceeds a certain threshold as determined by a test referred to as the “substantial presence test.”
What is the Substantial Presence Test?
You will be considered a U.S. resident for tax purposes if you pass the substantial presence test for the calendar year. To pass this test, you must be physically present in the U.S. for at least 183 days in the current year, or at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the 2 preceding years, counting:
- all the days you were present in the current year, and
- 1/3 of the days you were present in the first preceding year, and
- 1/6 of the days you were present in the second preceding year.
For example, if you are physically present in the U.S. on 120 days in each of the years 2015, 2014, and 2013, you are not considered a U.S. resident under the substantial presence test for 2015 as your total days for the 3-year period is less than 183 days, calculated as follows:
- All of the days in 2015 are counted: 120
- 1/3 of the days in 2014 are counted: 40 (120 x 1/3)
- 1/6 of the days in 2013 are counted: 20 (120 x 1/6)
Total 180 days
If you spend as much as 4 months a year in the U.S., care must be taken to accurately maintain your day count to ensure that you don’t become a U.S. resident subject to U.S. tax. This is especially relevant now that border authorities are maintaining their own count of your days as you enter and leave each country.
Note: You are generally treated as being in the U.S. on any day you are physically present in the U.S., at any time during the day.
Closer Connection Exception
Even if you pass the substantial presence test, you can still be treated as a nonresident of the U.S. if you qualify for the closer connection exception, which requires that you:
- are present in the U.S. for less than 183 days during the current year,
- maintain a tax home in Canada during the current year, and
- have a closer connection during the year to Canada.
Note: Your tax home is the general area of your main place of business or employment, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. If you do not have a regular or main place of business, your tax home may be the place where you regularly live.
You will be considered to have a closer connection to Canada than the U.S. if you or the IRS establishes that you have maintained more significant contacts with Canada than with the U.S. In determining whether you have maintained more significant contacts with Canada than with the U.S., the facts and circumstances to be considered include, but are not limited to, the following:
- The country of residence you designate on forms and documents
- The types of official U.S. tax forms and documents you file (e.g. Form W-9,
W -8BEN, W-8ECI
- The location of:
- Your permanent home,
- Your family,
- Your personal belongings, such as cars, furniture, clothing, and jewellery,
- Your current social, political, cultural, or religious affiliations,
- Your business activities (other than those that constitute your tax home),
- The jurisdiction in which you hold a driver’s license,
- The jurisdiction in which you vote, and
- Charitable organizations to which you contribute.
You cannot claim you have a closer connection to Canada if you applied for a U.S. green card in order to adjust your U.S. immigration status to lawful permanent resident.
You must file Form 8840, Closer Connection Exception Statement for Aliens, to claim the Closer Connection Exception. If you do not timely file the Form 8840 you cannot claim a closer connection to Canada. This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements.
The Form 8840 should be attached to your timely filed U.S. tax return (if reporting U.S. source income). If you have no U.S. source income and, therefore, are not required to file a U.S. tax return, the Form 8840 should be sent to the IRS by the due date for filing a U.S. tax return (which is generally on or before April 15 of the year following the year in which you met the substantial presence test).
Dual Resident Taxpayer
If you pass the substantial presence test but fail to qualify for the closer connection exception, you will be a resident for tax purposes of both Canada and the U.S. This will cause you to have income tax return filing requirements in both countries. While there is a mechanism within the Canada-US Income Tax Convention (the Treaty) to “break” your dual residency status back to Canada (i.e. you will be deemed a non-resident of the U.S. for Treaty purposes and a continuing resident of Canada), you will still have certain U.S. tax reporting obligations normally applicable to U.S. residents. These reporting obligations disclose detailed information to the IRS about your business and financial matters in Canada and carry significant penalties if not timely filed.
If you wish to avoid being a dual resident taxpayer and having to disclosure personal information to the IRS, you need to ensure that you either fail the substantial presence test or meet the closer connection exception.
This article provides general information only and should not be relied upon as advice. For further information about U.S. and cross-border tax services for Canadian Snowbirds, please consult our cross-border tax group.