By Diane Olson of the Diane Olson Team
I have been asked over and over again how many days can a Canadian legally stay in the US. As most know, Canadians wintering in the US are subject to US income tax if they exceed a certain number of days each calendar year.
Recently I spoke with Dale Walters, CEO of KeatsConnelly. Mr. Walters is an expert on cross border taxation and is the author of Buying Real Estate in the US – The Concise Guide for Canadians.
To determine the number of days, Dale Walters states the following:
“The confusing part is that there is a two-part test to determine if you have stayed too long and are therefore subject to US taxation. The first test is the easy one; if you are in the US more than 182 days in any calendar year, you fail the test and are considered a US resident and taxpayer. You do not want to fail this test because the options for fixing it are limited and can be expensive. The second test is a formula based on the number of days you have spent in the US over the past three years, with the older years having less weight than the newer years. In the current tax year (2011), each day counts as one day; in year two (2010), each three days count as one day; and in year three (2009), each six days count as one day.
Let’s assume that you are a snowbird that comes to the US every year from November 1 to March 31, which is a total of 151 days (152 in leap years). You have clearly passed the first test as you were not in the US for more than 182 days during the year. However, you failed the second test and if you do nothing, you are considered a resident of the US and are required to file and pay taxes in the US. Here is how it works:
Year 1 – 151 divided by 1 = 151
Year 2 – 151 divided by 3 = 50
Year 3 – 151 divided by 6 = 25
Total 196 You have FAILED the test
Here is where Form 8840 comes to the rescue. You acknowledge that even though you have failed part two of the test, you did pass part one and you are in fact a resident of Canada because of your “closer connection” to Canada. Form 8840 asked you questions about where your permanent home and personal belongings are located, where your family is located, where you maintain you professional, social, political and religious affiliations, where your car is registered and from where your driver’s license is issued, among others.”
You must file this form every year you fail the second part of the test. Do not expect to hear back from the IRS; no news is good news. You can find the form at http://www.irs.gov/pub/irs-pdf/f8840.pdf
Diane Olson is a former Canadian police officer whose team of agents has earned its reputation as Canada’s go-to realtor for Canadians looking to buy vacation and investment property in Arizona.