In November 2013, we told you about a plan that was being implemented jointly by the US Customs and Border Protection agency, Citizenship and Immigration Canada, and the Canada Border Services Agency (CBSA) to integrate exit and entry data of all individuals crossing the border, north or south. Up to now, US border agents could check you into the US, but they had no unified way of knowing when you returned home. Consequently, a pilot tracking system was tested out at several of the busiest border crossing points to see if it was possible to get reliable data.
This summer (if all goes according to schedule), the Entry/Exit program will go into full operation. US border agents will clock you in on your trip south, and Canadian agents will do the same on your northbound return; they will then share the data with each other and create an exact entry/exit profile of your travels.
An intrusion of privacy? Certainly. But that’s the trade-off. And it’s also going to be necessary for Canadian snowbirds and frequent visitors to the US to keep track of their travelling days, not to overstay their allotted time, and to make sure they comply with US tax laws—even though Canada is their tax home.
Related: Chart Your Border Crossings
Many snowbirds who spend a substantial amount of time in the US each year are technically residents for “tax purposes” without knowing it. If you enter the US on a B2 visitor’s visa, you can stay up to 182 days. But if you stay over your permitted number of days, the consequences can be severe—and your chances of being found out are greatly enhanced given this new Entry/Exit system and the closer working relationship between the Canada Revenue Agency and its US counterpart, the IRS. If you overstay, you may be banned from entering the US for years, or you might have to pony up US taxes, pay very heavy fines, or pay the CRA a “departure tax” (levied on Canadians permanently leaving the country). And you might very well lose your provincial health care, which is available only to permanent residents of Canada.
Okay. So how do you know when you have become a “US resident for tax purposes”? Follow the formula available to you at the IRS website.
If, for example, you were present in the US for 150 days in 2013, write down that figure; then calculate one-third of the days you were in the US the previous year (120 days ÷ 3 = 40) and one-sixth of the days from the year before (140 days ÷ 6 = 23). Add the three (150 + 40 + 23), and if the total exceeds 182 (which it does in this sample), you are a US resident “for tax purposes.” That means you must pay taxes just as Americans do—on their worldwide income, estate tax on assets, etc. I’m not going further with that as I am not an accountant or a tax expert. Don’t act on my words alone. Consult a properly qualified tax specialist. But don’t panic—because there is a clean and easy way to deal with this situation.
The IRS website will provide you with a form to print out, the 8840 Closer Connection form (requires Adobe Reader). If this is the first time you have seen this, shame on you. Experienced snowbirds have been filing it with the IRS for years. It helps you prove that you have a closer connection to Canada than to the US, and demonstrates you have a permanent home in Canada—where you pay your taxes and do your primary banking, where you have family and social connections, where you vote, where you derive the bulk of your income, where you have your furniture, car, etc. And because of all these connections, you are exempt from the need to file taxes with the IRS, except if you have derived earnings from US investments, business, sale of US property, etc. In these cases you will have to deal with the IRS.
To further complicate matters, you have probably heard about political initiatives to allow you to stay in the US for a couple of extra months—up to 240 days. It’s not going to happen this year, if at all. But we need to talk about it. And we will. Stay tuned.