Do you know the significance of 182?
That’s the maximum number of days most Canadians think they’re permitted to stay at their vacation homes in the United States while escaping the misery of a Canadian winter.
And what the heck, why not stay a few days more – nobody’s tracking me, right?
Both countries do track your entry says Grant Diamond, a senior tax consultant with FBC, a tax advisory service with over 60 years of service to the farm community.
Thanks to a new joint US/Canada information sharing initiative the number of days you spend in the US will soon be tracked and extremely accurately. The new computerized system will sense all entry and exit data trapped from the bar codes on our passports so that both countries will have a detailed ongoing record of where their citizen’s and visitors are spending their time.
June 30, 2014 was supposed to be the launch date for the new tracking process but the full exchange of data between both countries has been delayed until full legislative and regulatory changes are implemented. There is little doubt, however, that the changes will soon be made.
Technically, 182 days is an accurate annual limit under Canadian tax laws that you can stay out of the country without compromising your Canadian residency status. The US method of calculating the day count is a little more complicated. Yes, they do have an annual 182-day count but they also have another tricky little measure called the Substantial Presence Test (SPT). This measure is calculated on a 3-year rolling average so that anyone staying longer than 120 days a year sends off warning bells to US authorities.
This is how it works. Your stay of 120 days this year is added to one third of your 120 days last year (40 days), and one sixth of your 120 day stay two years ago (20 days) for a rolling total of 180 days for 2015. Exceeding 122 days will earn you the constant and persistent tracking of the US government. If you exceed 182 days of the SPT, you will be considered a US resident for tax purposes. It’s not uncommon for many Canadian retirees or sunbelt homeowners to exceed 120 days or roughly 4 months each winter.
There is a way around the problem, however, by filing a form with the Internal Revenue Service (IRS) in the US called Closer Connection Exemption for Aliens (form 8840). This document states you have a closer connection to Canada and you’re not trying to avoid paying taxes in the US. The deadline for filing this form is June 15 of the following year. Completing the form will allow you to stay in the US 182 days each year satisfying the requirements of both the IRS and Homeland Security.
If you don’t file this form and stay in the US longer than 120 days, you can be taxed on your world-wide income in the US and banned from entering the US for 3 years. The ban would be permanent for a second infraction. This ban can also apply to overstaying your welcome of 182 days even if you file form 8840.
You could owe estate taxes on US property including securities in American corporations, debt from a US person and the sunbelt homes that some of you enjoy. As of January 1, 2013 the American Taxpayer Relief Act permanently raised the maximum federal estate tax rate to 40% and maintained the $5 million effective exemption for estates of those dying after December 31, 2012.
Grant Diamond is a tax specialist with FBC, a firm dedicated to providing farmers and small business owners with expert tax services and advice for over 60 years. FBC has branches in BC, AB, SK, MB, ON and NS to serve its 50,000 Members. FBC also provides financial & estate planning. To learn more about FBC, visit www.fbc.ca. If you have any questions regarding this article, email fbc @ fbc.ca or call toll-free 1-800-265-1002.
Accurate as of April 08, 2015