Sharing the border with the U.S. means it is relatively easy to cross the border for a holiday or to visit an outlet mall. Infrequent visitors who are in the U.S. for 31 days or less a year are considered visitors and are not generally subject to U.S. income tax.
However, Canadians spending more time in the U.S. are sometimes surprised to learn their presence may trigger certain U.S. tax obligations.
If you find yourself with more than 31 days in the U.S. but less than 183, you may meet the substantial presence test, depending on how long you spent there both in the current year and in the previous two years. You will meet this test if the total number of days you spent in the U.S. over this period is 183 days or more, with days spent in previous year counting only as one-third of a day and days spent in the year prior to that counting only as one-sixth of a day.
If you do meet the substantial presence test, you would normally be considered a resident alien (No, not that type of alien!), which would require you to file a U.S. tax return. However, assuming your ties to Canada are closer than your ties to the U.S., the IRS will instead allow you to file Form 8840 Closer Connection Exception Statement. You must file this form by June 15 of the following year or you may be subject to a penalty.
If you spent more than 183 days in the U.S. during the past year, you are also normally considered a resident alien. However, if Canada is where you have your permanent home, you will probably be considered a resident of Canada for the purpose of the Canada – United States tax treaty. You may also be considered a resident of Canada if you have a permanent home in both countries, but your personal and economic ties are closer to Canada.
If you believe that you are a resident of Canada for the purpose of the treaty, you should file Form 8833 Treaty-Based Return Disclosure. If you are required to file a U.S. tax return as well then you should include this form with it. You will then be treated as a non-resident alien. This means that you will only be taxed on your U.S. source income or income that is effectively connected with a trade or business in the U.S. You may also be entitled to certain treaty provisions. If you do meet the substantial presence test and are considered a non-resident alien, you are still required to file a Foreign Bank Account Report (FBAR) if you meet the requirements.
Remember that if you claim to be a non-resident for tax purposes there could be implications for your green card or residency permit.
Sometimes filing as a U.S. resident on a 1040 form is more beneficial than filing as a non-resident. Consulting a tax professional about your situation could help determine the best possible tax outcome.
So if you find yourself spending more time across the border, you may want to keep track of the days a little more closely. The length of your visit could have important tax consequences.
A tax professional at H&R Block can talk about other credits and deductions that may affect you. To find the office nearest you visit www.hrblock.ca or call us at 1-800-HRBLOCK. If you are someone who prefers to file their own taxes, use a tax preparation software like H&R Block At Home do-it-yourself software (www.hrblock.ca) which provides a safe, reliable and stress-free option and ensure you get your maximum refund.
– Information provided by H&R Block (www.hrblock.ca)
This article provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this bulletin can be accepted by H&R Block Canada, Inc. and larkycanuck.com
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