Snowbird Taxes: Canadians Wintering in the U.S.
I want to spend the winter in the U.S. What should I do before I leave?
In addition to making sure your Canadian property will be looked after, it is a good idea to update your will and power of attorney. Get your financial affairs in order, making sure nothing will expire while you are away, setting up pre-authorized payments and making arrangements about your investments.
What documents do I need at the border?
Since June 1, 2009, Canadians who fly into the States need a valid passport. Those who enter by land or water may present a passport or an Enhanced Driver’s License or Enhanced Identification Card, available in certain provinces. Frequent travelers may obtain a NEXUS card. As a visitor or tourist, you will probably be issued a B-2 visa, for which you can apply in advance, allowing you to stay a maximum of six months in a calendar year.
You will not be able to work and you must keep your primary residence in Canada. Since you will be staying more than 31 days, you will need to prove that you can support yourself and that you plan to return to Canada. Canadian bank statements, notices of assessment, proof that you own your principal residence, and utility bills. Travel insurance indicating a termination date or a return plane ticket can be very helpful.
Why do people count the number of days they spend in the South during the winter?
The total number of days you spend in the States (including non-consecutive and partial days) is one of the ways the Internal Revenue Service (IRS) uses to determine if you are a resident or a non-resident alien. Each day in the current year counts as a full day, each day in the year before that counts as one-third of a day and each day in the year before that one counts as one-sixth of a day.
If the total is at least 183 days, you will generally be considered as a resident alien for the current tax year. You will probably have to file a U.S. tax return and declare income from all sources, including Canadian income. Non-resident aliens are usually taxed only on income from U.S. sources. In general, if you never spend more than 121 days in total in the U.S. during any tax year, you will not be considered a U.S. resident alien.
What about health care?
It is wise to check the coverage you’re getting from your provincial health-care system or group plan and to buy travel medical insurance (look for plans with a toll-free number that you can reach 24/7), for example, to cover possible gaps. Have a physical and fill prescriptions before you leave. In addition, be aware of your provincial plan’s limitations on extended stays outside Canada.
What happens if I buy a winter home?
If you have not bought it yet, you will be able to plan for the family tax implications of renting, selling and leaving the property to your family. It is best to do so with a qualified accountant with tax expertise and an experienced estate-planning lawyer. When you sell your second home, you are subject to U.S. income tax on the capital gains.
Renting your property while you are back in Canada.
If you rent your seasonal residence while you are not using it, the Internal Revenue Service will expect you to pay income tax on the rental income. You will have to apply for an ITIN number (individual taxpayer identification number) from the IRS before you file your taxes. It will take several weeks to get your number.
Do I have to pay estate tax on my U.S. property when I pass away?
U.S. estate tax is based on the fair market value of the property that is located in the States but your worldwide estate (fair market value of all assets at death, personal or spousal RRSPs, RRIFs, etc.) will be considered when calculating your total estate value and tax owing. Estate tax will not apply if your U.S. assets are under $60,000 and if your worldwide estate is under $2 millions.
How do I file my income tax in Canada?
When you spend part of the year in the U.S. and you maintain residential ties in Canada, you are considered a factual resident. Simply complete Schedule D on form T1248 and become familiar with these precisions before you file your income tax.
I won money from U.S. lottery or gambling. What happens now?
First, it is recommended that you keep a detailed diary of your gambling losses and wins as well as all your wagering tickets so you can deduct your losses from your winnings. If the winnings did not come from blackjack, baccarat, craps, roulette and the “Big 6” wheel, they were subject to a 30% tax at the time of the win. You can recover that amount by using your ITIN number and attaching form 1040NR to your U.S. tax return.