What is a Snowbird?
What is a Snowbird?If you are a Canadian and spend winter in the U.S. you may, unknowingly, become a US resident under the tax laws of the United States. So, now you are a tax resident of both Canada and the US. Snowbirds are the Canadians spending their winters in the United States.
When you spend winters every year for a prolonged period of time in the United States you may meet the substantial presence test.
As per the US Tax Code if an individual meets a substantial presence test he or she is subject to U.S. tax on his/her worldwide income. Not a situation snowbird would love! But if you meet a substantial presence test but you have a “closer connection” to another country you would not be considered a US resident for tax purposes.
Substantial Presence Test
A common misconception is that spending up to 182 days each year in the US will have no US tax effect on a Canadian. This is not correct!
You will meet the Substantial Presence Test if you spend at least 31 days in the current year “and” if the result of the below formula is equal to or more than 183 days.
(Total no. of days you have spent in the US in the current year) PLUS (No. of days spent in the previous year divided by three) PLUS (No. of days spent in the previous-to-previous year divided by 6)
SPT = [(CY days)] + (CY-1 days x 1/3) + (CY-2 days x 1/6)
If the result of this formula is equal to or more than 183 days, you have met the substantial presence test. This is important to mention that a certain number of days spent in the US are not considered while calculating the Substantial presence test; days spent unintended due to a medical emergency, days used to commute to work in the United States, less than 24 hours spent while transiting through the United States and days spent by certain students in the United States.
Closer Connection Exception for Aliens
If you have a closer connection to another country for tax purposes, you can avoid the US tax consequences by filing form 8840 with IRS. If you are a Canadian resident, spend most of your time here in Canada, and file your taxes, you have a closer connection to Canada.
You have a closer connection to Canada if you have spent less than 183 days in the US during the current calendar year, your tax home is in Canada and you can demonstrate that your Canadian connection is closer than the connection with the United States. If you cannot claim a closer connection you can still claim U.S. nonresidency under tie-breaker rules.
When to file form 8840?
Form 8840, also known as Closer Connection Exception for Aliens Statement, must be filed with IRS before the due date for filing of US income tax returns for individuals. The due date for filing the income tax return in the US is the 15th of April whereas for individuals who do not have US source employment income due date is the 15th of June. This form is filed even if you do not have US income. As mentioned before US taxes the worldwide income of US residents so skipping this form may have serious tax consequences.
Taxes for Residents of both the United States and Canada
If you are a resident of both the United States and Canada under tax laws, you can use the Canada-US Tax treaty to avoid double taxation on your worldwide income. Under the US-Canada Tax treaty, you can choose to be a resident of either country. You must file form 1040-NR which is US individual tax return for Non-residents. It has the same deadlines as the filing of other US Individual tax returns. You must attach a treaty disclosure form, IRS form 8833. If you fail to file a treaty disclosure return you may be slapped with a USD 1000 penalty and your treaty-based position may not be acceptable to IRS.
Tax returns for dual citizens or residents and snowbird filings are complex tax matters and help from professional tax preparation services be sought to ensure compliance with tax laws.
We, at Maroof HS CPA Professional Corporation, provide individual tax preparation services in Canada and the United States along with Corporation Tax Services for Canada and the United States.
Read Canadian Businesses with US Income tax reporting. I am a Canadian business and doing business in the US, should I file a US income tax return?
Read Covid-19 relief from the substantial presence test in the U.S.
