TaxMatters@EY - March 2014

Snowbird alert: changes to information sharing at the Canada-US border

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Alex Israel, Toronto

It’s trite to say that Canadian “snowbirds” travelling south to the US enjoy what they cannot here in Canada: palm trees, warm winter weather and deep discounts at US retailers.

With this luxury, however, comes a price – the increased sharing of travel information between Canada and the US, and the possible exposure to US income tax. New rules coming into effect on 30 June 2014 will change the way US and Canadian immigration and tax authorities are able to monitor the comings and goings of their respective residents. In June, the final phase of the Entry/Exit Initiative of the Perimeter Security and Economic Competitiveness Action Plan will be implemented.

With the new rules, for the first time US immigration and tax authorities will be able to independently tally the number of days a Canadian resident has spent in the US when travelling to and from the country.
From an immigration perspective, what does this mean to the US-bound traveller?

  • US immigration authorities will have greater access to information regarding the comings and goings of Canadian residents. For those travelling frequently to the US on business, this means that the US government will have a better understanding of how much time was actually spent in the US. We anticipate that this will mean greater scrutiny at the border for frequent US-bound business travellers. Expect more questions about what exactly you’ll be doing as you travel to the US.

  • The new rules will also provide enhanced access to government authorities relating to information on those who have been removed from, or who have been refused admission to or a visa from, either country, as well as those who have been removed from their respective countries for criminal reasons. In other words, this may lead to an increased number of inadmissible Canadian travellers whose criminal past is now being shared more broadly with US authorities.

  • Should a Canadian traveller remain in the US beyond their authorized stay, authorities in that country will be better able to identify such infractions, which could lead to adverse penalties for snowbirds and other travellers. Generally, Canadian citizens are authorized to remain in the US for business or pleasure for up to six months. A stay beyond the authorized period of admission, depending on the facts, could have consequences, including the inability to be readmitted to the US if found to have been unlawfully present in the US.

As such, for frequent visitors (business or pleasure), we recommend reviewing your travel patterns to the US. Frequent business travellers should also look at their activities and travel needs to determine whether they should consider obtaining work authorization in the US.

Finally, travellers should be ready to be confronted on any criminal past: for those who have one, we recommend that you consult with an Egan LLP immigration attorney to prevent your past, if disclosed to authorities, from leading to an adverse finding of inadmissibility to the US.

US tax for Canadians

If you’re a Canadian resident (but not a US citizen) who spends significant amounts of time in the US for either work or leisure, you may be required to file US federal income tax returns.

That’s because, under US law, you may be considered a US resident as well as a resident of Canada. You’re considered a US resident if you hold a green card or if you meet the “substantial presence” test.

You have a “substantial presence” in the US if you spend at least 31 days there during the year, and the result of a prescribed formula for presence in the US is equal to or greater than 183 days.

The prescribed formula for 2013 is as follows:

  • The sum of the days you spent in the US in 2013
  • Plus one-third of the number of days spent there in 2012
  • Plus one-sixth of the number of days spent there in 2011

This means that people who regularly spend four months a year in the US will be considered a resident under this test and should be filing the easy-to-complete Internal Revenue Service (IRS) closer connection statement (form 8840) before 15 June of the following year. (If you have certain types of US-source income and must file a US federal tax return, the filing deadline will be 15 April if you have employment income that is subject to US withholding tax, or 15 October where a filing extension has been requested. In these cases, form 8840 should be filed with the 1040NR.)

Form 8840 should be filed even if you have no income from US sources, in order to avoid reporting your worldwide income on a US tax return (and other US filings).

For additional information regarding US tax for Canadians, see Managing Your Personal Taxes: a Canadian Perspective.