Proposed US legislation known as the “JOLT Act” (Jobs Originating Through Launching Travel) would allow certain Canadians age 55 or older to visit the US for up to 240 days in a 365–day period rather than the present 182 days. The proposed legislation also provides for a retiree visa for certain foreign citizens. Its future is uncertain, however, as it has been attached to the highly contentious comprehensive immigration reform bill, passed by the Senate, but strongly opposed by the House of Representatives. If the legislation is enacted, any Canadian wishing to apply for the 240-day visa must consider the health insurance implications, both US and Canadian income tax implications, as well as the US estate tax implications.
US Income Tax & Reporting Implications
US Income Tax – Once you spend more than 182 days in the US in one calendar year, you will be disqualified from filing the “Closer Connection Exception Statement” (IRS Form 8840); this means you will be considered a US resident for US income tax purposes. In this case, you must file a US income tax return (assuming your income is over the filing threshold).
You will then have two potential US tax filing alternatives. Regardless of which is applicable, you will still be subject to all the US reporting obligations alluded to below.
- If your circumstances warrant, you will be able to make a treaty claim to pay US income tax only on your income from United States sources.
- If the first option (above) is not available to you, you will then be subject to US income tax on your worldwide income. For many (perhaps most) Canadians, this will not result in any actual US income tax because of the ability to offset Canadian tax against US tax.
US Reporting Obligations – For most Canadians exercising either of the JOLT provisions, the worst US income tax impact will be the reporting obligations that are part of US law. American tax law has a plethora of disclosure and reporting requirements for US residents, most of which have substantial penalties for failure to comply by a certain deadline: often a flat $10,000 penalty. Examples include the “FBAR” (foreign account report) for disclosure of your foreign financial accounts including, but not limited to, bank accounts, securities accounts, RRSPs, RRIFs, LIRAs, LIFs, LRSPs, RESPs, and TFSAs. Others requirements include special forms for reporting your involvement with foreign trusts, Canadian RESPs, TFSAs, and Canadian private corporations and partnerships.
Canadian Income Tax Implications
Among other factors, individuals applying for the 240-day visa would have to consider whether their actions will affect their Canadian income tax status, which in turn, could have other consequences such as triggering Canada’s “departure tax.”
US Estate Tax Implications
Individuals who are domiciled in the US are subject to US estate tax on their worldwide assets. Whether you are domiciled in the US depends on the facts of your particular circumstances; however an individual who becomes a resident of the US with no clear intent to leave is in danger of being domiciled in the US.
So Is It Worth It?
If and when the JOLT Act is passed into law, Canadians hoping to spend the full 240 days in the US will have to consider the potential tax implications very carefully before packing their bags. If the potential cost of any additional expenses outweighs the extra time in the US, you may want to cut your trip short. However, if you decide that the extra days in the US are worth it, there will still be a separate limit on the number of days that you’re permitted to stay outside of your home province while still maintaining coverage under your Canadian provincial government health insurance plan—coverage that is required before purchasing any travel insurance policies for Canadians. If you need help finding the right coverage for an extended trip to the US, speak with the experts.
Richard Brunton, a long-time contributor to TIF, is a Florida-based Certified Public Accountant focusing on cross-border and international tax issues. Question for Richard? Leave it in the comment box below.
This article is for information only and does not constitute tax advice. Consult your tax advisor for advice appropriate to your own circumstances.