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Seven Things Every Canadian Should Know About U.S. Tax & Immigration Rules

By Diane Amato

Published May 24, 2018 • 6 Min Read

To keep you informed and protected against unpleasant surprises, here are 7 things you may want to consider about working, visiting and staying in the U.S. as a Canadian.

Please note that the following information is for reference purposes only and not professional tax advice. For expert tax advice specific to your individual situation, contact a tax professional.

1. Understand U.S. Immigration Rules

U.S. Immigration rules are strict, but also fairly straightforward. They state that if you’re a Canadian resident, you can’t spend more than 182 days in the U.S. per year (note, that’s a 365-day rolling year, not a calendar year).

If you go over that count, you could be considered an illegal resident of the U.S. and be banned from the country for 3 – 10 years. You could also risk losing your Canadian residency, which would likely affect your health care and coverage.

2. Understand U.S. Tax Rules

U.S. Tax Rules get a little more complex. But because you want to avoid U.S. tax payouts or penalties at all costs, you’ll want to understand what the rules are and how they may apply to your U.S. visits. Because if you stay too long in the U.S., you may be considered a U.S. resident for tax purposes, which would require you to pay tax to the IRS on your worldwide income.

Unlike U.S. Immigration Rules, the amount of time you can stay in the U.S. without a tax penalty isn’t based on a set number of days every year. Rather, you need to consider time spent in the U.S. over the last three years. This is where the Substantial Presence Test comes in.

3. Know How the Substantial Presence Test Works

The Substantial Presence Test is a formula you could use to determine if you’re spending too many days in the U.S. for tax purposes. It’s based on how many days you have spent in the U.S. over a 3-year period, including the current calendar year and the previous two calendar years. The formula looks like this:

  • Add all the years you spent in the U.S. in the current calendar year, and

  • 1/3 of the days you spent in the U.S. last year, and

  • 1/6 of the days you spent in the U.S. in the year prior to last year

If the total equals at least 183 days, you would meet the Substantial Presence Test and be considered a U.S. resident for tax purposes in the current year (and may be subject to tax payments to the IRS).

4. There Are Calculators to Help

Don’t want to do the math, or want to make sure you’ve calculated things correctly? The Substantial Presence Test Calculator is a handy tool that could help you determine your status in the U.S.

5. And If You Meet the Substantial Presence Test? Go to Plan B

If your calculations put you over 182 days – but your connections are much closer to Canada than they are to the U.S. – you may be able to avoid paying taxes in the U.S.

With the Closer Connection Exception, you may be eligible to spend up to 182 days in the U.S. per calendar year, as long as you prove that you have closer ties with Canada. The U.S. government looks at a number of factors in determining if you qualify for this exception, such as where your home and family are located.

  • Your permanent home is in Canada

  • Your family is located in Canada

  • Your business activities are carried on in Canada

  • You own personal property in Canada such as a car, furniture, jewelry

  • You hold a Canadian driver’s license

  • You have memberships in social organizations in Canada

  • You are registered and vote in Canada

  • You belong to religious, political or cultural organizations in Canada

  • You have a bank account in Canada

To qualify for this exception, you have to file Form 8840 with the IRS every year before June 15th.

6. And If You Don’t Quality for the Exception? All Is Not Lost!

If you’re not eligible for the Closer Connection Exception, you may still be able to apply for a tax exemption under the Canada-U.S. Tax Treaty. One of the main goals of the treaty is to prevent double taxation of Canadian taxpayers, so there are some tiebreaker rules set up to determine whether you should be paying tax in Canada or the U.S.

The tiebreaker rules are applied on a hierarchical basis, starting with the first factor. So if that factor doesn’t solve anything, you may continue to move onto the second factor and so on.

1) Is there a permanent home available to you in Canada or the U.S.?If you have a permanent home available for your use in both countries, you may have to look at the second tiebreaker rule2)In which country do you have closer personal and economic relations?For instance, is your family located in Canada? Are you carrying on a business in Canada? Are your bank accounts and social memberships in Canada? Are you registered and vote in Canada?3)In which country do you typically live?4)Which country are you a citizen of?

To claim the treaty exemption, it’s typically required to file a U.S. non-resident tax return (1040NR) and attach a treaty exemption statement (Form 8833), which indicates you are a resident of Canada under the treaty.

7. You Can Track Your Border Crossings Online

If you haven’t been keeping close track of how long you’ve been spending in the U.S. over the last few years, not to worry. Canada and the U.S. share information about when you enter and leave each country and the Canada Border Patrol provides online access to a report of your border crossings. To access the information, have your passport handy, and you’ll need to enter a few details from it.

Bottom Line

You may want to consider spending fewer than 182 days per 365 day period in the U.S. to avoid being considered a U.S. resident for income tax purposes. Also its best to keep track of your time spent in the U.S. over a three-year time frame to avoid penalties and extra tax payments.

If you’re close to the allowable number of days you can spend in the U.S., or have questions about past or future visits, it’s a good idea to speak with a tax expert and a legal professional, so you could avoid surprises and enjoy peace of mind throughout your cross-border travels.

Thinking of becoming a snowbird? Get more practical planning tips here. While you’re at it, discover how RBC BankTM helps Canadians live, stay, shop and buy property south of the border.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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