If you are one of the lucky Canadians who winters in the southern US-the Canadian government is looking a little more closely at your winter vacation. New border tracking technology is tipping of the government about Canadians that stay longer in the US than they’re supposed to. So, why does the government want to track your movements to the U.S and what are the implications for snowbirds?
And the Canadian government is going to be looking a little more closely at your winter vacation.
Here to give us some context of what it means and things you need to watch out for is Tarsem Basraon.
He's a High Net Worth Planner with Wealth Advisory Services at TD Wealth.
So this is-- let's just talk about the reason why we're talking.
There's a system in place that is somehow going to be affecting snowbirds in the very near future.
What is it?
So, the system relates to cross-border movement--that both governments will have an exact record of the number of days that you're in the US and the number of days that you're in Canada.
And they're going to share that information with each other. And then, what we don't know is exactly what they're going to do with that information.
So, there are some theories on what they're going to do and what they're expected to do.
For example, CRA and IRS will get that information.
And then will social services and things like that-- will they also get that information? We're not sure exactly how it's going to be implemented.
So there are rules, which I want to talk about here.
But also there's a way to track to make sure all these things are happening accurately.
And that's what's different is now they're going to have this tracking device to really know what's actually happening with everybody.
The rules-- the tax rules haven't changed.
Your eligibility for all these security or health benefits--none of that has changed.
The only difference is is that they're now going to have a better tracking system for the number of days.
And the number of days is what affects your entitlement to those benefits.
Or, for example, for tax purposes.
OK, we'll get into what this could effect, but just really briefly remind us what are the rules again for Canadian snowbirds in terms of how long they can spend in the States?
There's really three main tests that you need to be concerned with.
One is very simple.
It's are you in the US for more than 183 days in a calendar year?
Which is very easy for someone to add up.
If you're over that, you are considered to be a US resident for tax purposes.
And what that could mean is that you could have to file a US tax return.
The consequence of being a US resident for tax purposes is very punitive.
One, you'd have to claim all your worldwide income in the US.
You'd be subject to, for example, US estate tax on your worldwide assets.
You'd have to disclose your foreign assets, foreign bank accounts, things like that.
And you could be considered to have deemed to have departed from Canada, which would mean that you would owe departure tax in Canada.
So, then the second test that most people are not aware of is a substantial presence test, which is a formula that adds up a bunch of different dates over a three-year period.
It's complicated, but in the end, generally as long as you've stayed less than 120 days a year, then you'll be OK on that substantial presence test.
And then the third test, which a lot of people forget about, is that when you enter the US, you're entering on a visa.
But technically, you have a problem if you are more than 180 days in the US over a 365-day rolling period.
And if you violate that?
Then you could have a travel ban in the US.
So, it's very punitive.
And the other issue with it is that there's a difference between calendar year, which is the tax test and this is a rolling 365-day period.
So let me ask you, you mentioned taxes.
I think it's pretty clear this has a massive implication for you and your taxes and where you pay and that sort of thing.
But also, health care-- how could this effect health care benefits?
So, in Canada, we're entitled to government health care depending on the province.
Each province has its own rules.
So you would have to make sure that you're on side with the provinces.
So, for example, in Ontario, there is 153 days.
So as long as you are in Ontario for 153 days, you'll be OK.
But if you are not, then you may be dis-entitled to OHIP, and it's quite the process to get back into entitlement.
What about old age security?
So old age security—the rules are very simple.
You can collect old age security as a non-resident.
The only issue is that the eligibility relies on residency.
So what the system could do is somebody who is in the US for long periods of time and who is not declaring to the Canadian government -- that they were not a resident of Canada and then was collecting old age security.
What the government could say is, OK, you didn't meet our eligibility.
So you get a reduced amount.
Or if you don't even meet our basic tests, which is 10 years or 20 years, depending on whether you're in or out of Canada, you could be dis-entitled.
So it doesn't affect anyone that's eligible for old age security.
What that rule does is it affects people that may not be eligible to begin with.
Finally, child tax benefits--how would this be effected or how could it be effected if this information is shared?
In order to get child tax benefits, you have to be a resident in Canada.
So what some people are doing is that they are living abroad, but they're still collecting that.
They're still filing a Canadian tax return in order to collect child tax benefits.
So what this would do is they would track those people.
And it would ensure that they would not get the child tax benefit.
Any final words for those snowbirds who are listening going, OK, what do I do with all this information?
So the biggest thing is you have to track those days, and you have to be diligent.
And you have to know the rules.
Speak to your tax accountant, and give him or her that information.
And then they can determine for you, do you have an issue or not?
And then if you do have an issue, they can then refer you to a US tax person.
Thank you so much.
Tarsem Basraon is a High Net Worth Planner with Wealth Advisory Services at TD Wealth.