Cross border us real estate
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This document provides information about tax considerations for Canadian snowbirds traveling to the United States. It discusses how snowbirds can be considered non-resident aliens or resident aliens by the IRS depending on their length of stay and ties to the US. It notes that both Canada and the US tax worldwide income based on residency, so snowbirds need to be careful not to be deemed residents of both countries. The document also outlines the substantial presence test and closer connection exemption that determine residency status, and lists various social, economic, and personal ties that are considered for the closer connection test. Finally, it discusses the US estate tax implications for non-residents based on their US situs property holdings.
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Cross border us real estate
- 1. Cross Border Tax & Estate Planning Ed Madro – 403 220-9654 1
- 2. This Presentation Is provided by Investors Group Securities Inc. (in Quebec, firm in financial planning). Is specifically written and published by Investors Group and intended as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide legal advice. Clients should discuss their situation with their Investors Group Consultant for advice based on their specific circumstances. 2 Is provided by Investors Group Financial Services Inc. (in Quebec, a financial services firm). Although we have tried to ensure the accuracy of this information, tax laws change frequently so the provisions and exemptions mentioned in this presentation may change.
- 3. Snowbirds For this presentation: Residents of Canada • Worldwide income taxed in Canada 3 Not a citizen of the United States
- 4. Canadian Images of Snowbirds 4
- 5. How does the Internal Revenue Service (IRS) imagine a Snowbird? If not a US Citizen you are either: 5 a non-resident alien; or a resident alien.
- 6. Snowbirds in the U.S. Non-resident Aliens 6 only subject to U.S. income tax on U.S. source income only subject to gift and estate tax on U.S. situs assets
- 7. Snowbirds in the U.S. Resident Aliens Subject to U.S. gift and estate tax on worldwide assets 7 Subject to U.S. income tax on all sources of income worldwide Green Card Holders – deemed to be residents of the U.S.
- 8. Both countries tax worldwide income based on Residency! 8 Can you be considered a resident of both Canada and the United States? - YES Do you want to be considered a resident of more than one country?
- 9. How long can we stay? Canadian visitors are generally granted a stay in the U.S. for up to six months at the time of entry. Requests to extend or adjust a stay must be made prior to expiry to the U.S. Citizenship and Immigration. 9 Canadian citizens do not require a visa to enter the United States directly from Canada for the purposes of visiting. A visitor who intends to live, work or study in the U.S. may be permanently barred from the U.S.
- 10. “I don’t live in the U.S. for more than 6 months…am I OK?” Deemed resident if: Present in U.S. for 183 days or more in current year • Required to file U.S. tax return (Form 1040) • May be able to treaty tie-breaker under treaty Present in U.S. for more than 31 days in current year and meet the Substantial Presence Test • Required to file U.S. tax return (Form 1040) unless you can demonstrate a closer connection to Canada 10
- 11. Substantial Presence Test substantial presence exists if you stayed in the U.S. for at least 31 days in current year and for greater than 182 under the above formula 11 Calculate days spent in the U.S. as follows: • All days in current year • Plus 1/3 of days previous year • Plus 1/6 of days second previous year Days do not need to be consecutive and partial days count as full days
- 12. Deemed U.S. resident if more than 182, unless… Year Multiplier Days Present in U.S. Total 2012 1 120 120 2011 2010 Total 12
- 13. Deemed U.S. resident if more than 182, unless… Year Multiplier Days Present in U.S. Total 2012 1 120 120 2011 1/3 150 50 2010 Total 13
- 14. Deemed U.S. resident if more than 182, unless… Year Days Present in U.S. Total 2012 1 120 120 2011 1/3 150 50 2010 1/6 180 30 Total 14 Multiplier 200
- 15. Closer Connection to Canada Will not be deemed a US resident if: • less than 183 days were spent in the US in the current year ; and • “closer connection” to Canada than to the U.S. in the current year. Closer Connection Exemption Statement for Aliens - IRS Form 8840 • Must be filed by June 15, 2013 for the 2012 taxation year • see CRA publication “Canadian Residents Going Down South” 15
- 16. Closer Connection to Canada Economic and Social ties must be more significant to Canada than to the U.S. Some important ties include: • • • • • Location of permanent home Location of personal belongings Location of family and business activities Location of banking relationships and investments Social, political, cultural or religious organizations to which taxpayer belongs • Jurisdiction in which driver’s license held 16
- 17. Things to Consider Where do I attend church? Do I need bank and credit card accounts in the US? Should I buy and keep that luxury vehicle in the U.S.? Have my children moved away from Canada? 17 Where is my golf club membership? Should I rent out my Canadian home?
- 18. Residence under Treaty If fail to file Form 8840 on time, you cannot make Closer Connection claim Only recourse is to seek a determination of residential status under Article IV of the CanadaUnited States Income Tax Convention • See IRS publication 519, US Tax Guide for Aliens, and Form 8833, “Treaty-Based Return Position Disclosure Under Section 6614 or 7701(b)” 18
- 19. What if I lose my Canadian residency? Deemed disposition of most property at fair market value • Capital gains triggered • Tax due with filing of tax return for year of departure • Tax can be deferred by providing CRA sufficient security Main exceptions • • • • 19 Canadian real estate Registered assets (RRSPs, RRIFs, TFSAs) Life insurance Capital property used in business
- 20. For Non-Residents What Assets are Subject to U.S. Estate Tax? What is U.S. Situs Property? U.S. real estate Shares of U.S. corporations • even if held in accounts outside of the U.S. • even if held in RRSPs, RRIFs & TFSA Tangible property located in the U.S. • including automobiles, furnishings, etc. 20 U.S. debt instruments (with exceptions)
- 21. Will Rogers “The only difference between Death and Taxes is that Death doesn’t get worse every time Congress meets!” 21
Editor's Notes
- If you are licensed with Investors Group Financial Services Inc. (Mutual Fund Dealers Association – MFDA) use line one of the disclaimers listed above. If you are licensed with Investors Group Securities Inc. (Investment Dealers Association – IDA) use line two of the disclaimers. Delete the dealer line that is not applicable. If there is a guest speaker insert the following disclaimer on this page: Views expressed by guest speakers may not be shared by Investors Group.
- If the above formula results in 183 days or more, the snowbird may be deemed a deemed resident of the US for the purposes of US Income Tax law. The snowbird will not be deemed a US resident if: less than 183 days were spent in the US in the current year; the snowbirds “tax home” is Canada; and the snowbird has a closer connection to Canada than to the US in the current year. Persons who meet the substantial presence test must file a “Closer Connection Exception Statement for Aliens”, IRS form 8840, to claim a closer connection to Canada. Penalties exist for failure to file form 8840. IRS Form 8840 can be found in the CCRA publication “Canadian Residents Going Down South”.
- Most true snowbirds will also be considered resident of Canada for the purposes of Canadian Income tax law. If they cannot meet the US “closer connection test”, they may need to seek the protection of the Canada-US Income Treaty to prevent being taxed as a resident of both countries. See IRS publication 519, US Tax Guide for Aliens, and Form 8833, “Treaty-Based Return Position Disclosure Under Section 6614 04 7701(b)”. Life gets complicated if the snowbird remains in the US for more than six months!
- Taxpayers leaving Canada have a deemed disposition on almost all property. This will trigger any accrued gains on the final Canadian tax return. The exceptions listed above are the most common ones. Shares in Canadian Controlled Private Corporations no longer considered Taxable Canadian Property.