Tax Concerns for Snowbirds

July 30, 2013 Hull & Hull LLP In the News Tags: 0 Comments

Snowbirds might want to read an article I came across before their next trip back to the US for the winter. The article discusses the current immigration bill pending before the US Congress. It is reported that if the bill becomes law, Canadians will be able to obtain a "Snowbird Visa" that will entitle them to be physically present in the US for a period of 240 days. The author also addresses potential negative tax consequences of the Snowbird Visa.

The law does not exempt the 240 days in the US for tax purposes, so the holders of the Snowbird Visa can become subject to US income tax and US estate tax. Individuals are "resident" in the US, and therefore subject to being taxed, based on two tests:

• (1) if an individual is physically present in the US for more than 182 days in the calendar year that person is a resident: However, if the individual can establish that their center of vital interests is in Canada the Treaty will override the 182 day rule and deem him resident of Canada and therefore not subject to tax on worldwide income – one must still file a US tax return to claim the relief afforded under the Treaty. The Treaty does not relieve the individual from either the obligation to file all requisite US forms or the obligation to pay penalties for the failure to file these forms.

• (2) the "Substantial Presence Test" – it requires applying a mathematical formula to the days present in the US, which includes adding the number of days in the US in the current year, 1/3 of the days from the prior year, and 1/6 of the days from two years prior. If the individual spends more than 30 days in the US in the current year, and the sum of those three figures is greater than 182, then the individual is resident in the US for US income tax purposes and therefore subject to tax on worldwide income. However, if the individual has a closer connection to Canada and files the US form 8840 with the IRS, then he will be deemed to be not resident in the US and therefore exempt from US tax on worldwide income and all US filing obligations.

"US Residents" are also subject to the estate tax on worldwide assets. For estate tax purposes, an individual is "resident" if he: a) lives in the US, even for a brief time; and b) has no definite intention to move. The surrounding facts and circumstances are considered when applying this test, which can be challenging as facts change with time. An individual’s residency status for estate tax purposes can therefore change with each passing year.

The would-be holders of the Snowbird Visa need to realize that obtaining tax advice is important, as both US and Canadian tax issues will arise if they spend a significant amount of time in the US.

Thanks for reading and have a great day,

Natalia Angelini

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