FLYING SOUTH OF THE BORDER IN WINTER?
REMEMBER TO COMPLY WITH TAX LAWS!
During the winter, if you spend an average of 4 months in the United States, you could be subject to U.S. income tax from Internal Revenue Services (IRS), American Agency responsible for the compliance of tax laws.
In fact, you could be considered a U.S. resident if you meet the required number of days of presence called the “Substantial presence test”. Calculation for the year 2014 is as follows:
100% number of days of presence in 2014
1/3 number of days of presence in 2013
1/6 number of days of presence in 2012
If the days of presence total 183 or over, and you have over 31 days of presence in 2014, you will be treated as a U.S. resident.
You can avoid this situation by establishing that you had a closer connection (permanent home, family, automobiles, furniture, driver’s licence, etc.) to Canada where you pay income taxes. This exception from the U.S. tax authorities is called “Closer Connection Exception”.
To be granted your 2014 exemption, you must file the American Form 8840 “Closer Connection Exception Statement for Aliens” with the IRS. This form must be sent to the IRS by June 15, 2015. As a reminder, since this form must be filed each year, we recommend the good habit of filing this form and your Canadian income tax returns at the same time.
Be careful when counting your days of presence in the United States, you may not qualify for the Closer Connection Exception if they total 183 or over for that given year. The same applies if you are a green card holder or have applied for one.
On June 30, 2014, the exchange of information between Canada and the United States was implemented regarding the automated passport control and the number of days of presence in the United States. Therefore, it is important to keep a log for your days of presence.
In addition, to retain your health insurance coverage from la Régie de l’assurance maladie du Québec, you must be present in Québec 183 days or more per calendar year (excluding absences of 21 consecutive days or less).
If you have a bank account with a financial institution in the U.S. that earns interest, a non-resident withholding tax of up to 30% may apply. According to the Canada/U.S. tax treaty, to be exempt of this withholding tax, we recommend that you complete the American Form W-8BEN “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)” and give it to your banker. You will avoid any withholding tax on interest earned, and only 15% on dividend income.
This article is provided for information purposes only. Please advise us if you spend part of the Winter in the United States, we will analyze your position and confirm that you meet the American laws’ requirements.