US non resident tax implications for Canadians

[bernard]

Hello I am new to this site and forum and seek confirmation of the multitude of sites I have reviewed for a consice answer to the question above. I am a Canadian citizen but live and work out of the Caribbean and Europe which takes me on the road for many months in the year - I know nice eh!! But I have a place in the US that I visit on my way through for serveral weeks at a time. I am a declared ex-pat with Canada and the Inland Revenue there for many years. Is it a fact that, as a Canadian citizen (even though I do not reside in Canada) I can be in and out of the US legally and tax wise as long as it is less than 183 days in the US each calendar year - and not necessarily all in one shot? Hope I am making sense!! I would appreciate any and all replies and advise. Thanks

[Steven]

There are no tax implications in the US, you don't live there, you don't work there, you're just a visitor. As a visitor you can't spend more than six months a year there anyway which is why the IRS came up with the substantial presence test rule.

Make sure you file the right paperwork with your bank in the US, i.e. a W-8BEN - provided wherever your tax home is has a tax treaty with the US.

[bernard]

Thank you Steve. I have filed a W8 form with the bank and will not be more than a total of 6 months in a calendar year. By the way I will be back in US for about a week in November and then back again mid December. By that time I will have been out of the US for over 6 months for 2009. But my question is when does the year begin for the next series of 6 months - January?

[Steven]

As far as the substantial presence test rule goes it's 183 days in any tax year.

[bernard]

Hi again Steve. I found this article in The International Tax Advisor online and I have to say it has me confused. You definitely seem to know and understand this can you clarify the two paragraphs below that I copied and pasted from the article in how it relates to my situation - particularly the first paragraph of point 2. Many thanks:

Resident Status Under U.S. Tax Law

2. Substantial Presence Test - An individual is a resident under this test if physically present in the U.S. at least 31 days during the current calendar year and 183 or more days during the current and two prior calendar years computed under a “weighted presence formula” (i.e., counting each whole or partial day in the current year as one day, each whole or partial day in the first prior year as 1/3rd of a day, and each whole or partial day in the second prior year as 1/6th of a day). A foreign visitor spending on average four months and two
days a year in the U.S. during a three year period is considered a U.S. tax resident under this test.


Closer Connection Exception - An individual is not treated as a U.S. resident under the substantial presence test if he is present in the U.S. fewer than 183 days in the current year, has a “tax home” in Canada and has a “closer connection” to Canada than to the U.S. An individual cannot assert this exception if he has or intends to apply for a greencard. Even if the requirements of this exception are met, the individual must also timely file a Form 8840 with the IRS. For an individual with a closer connection to Canada, filing Form 8840 merely avoids the “penalty” of not being allowed to assert the exemption (properly filled out it indicates, but does not prove, existence of the closer connection). For an individual without a closer connection to Canada, or with a closer connection to Canada and one other foreign country, filing does not provide any protection at all. Once the IRS receives the Form 8840 it is stamped and returned to the individual. IRS says it does not keep record of forms having been filed so it is important to keep the returned copy in a safe place (for at least three years, but preferably forever) since the burden of proving timely filing is on the taxpayer.



Canada-US Tax Treaty Protection Taxes


It is very important to note that the tax treaty provisions override or modify U.S. (and Canadian) tax laws. Thus, even though a long term Canadian visitor may be considered a U.S. resident under U.S. tax law, dual resident status may be avoided by invoking the treaty. The treaty mandates that a dual resident taxpayer be treated as resident in only one, not both, countries under the “tie-breaker” rule set forth in Article IV.2. which provides that: the individual is deemed a resident of the country in which he has a “permanent home;” if he has a permanent home in both or neither, he is a resident of the country in which he has his “center of vital interests;” if he has his center of vital interests in both or neither, he is a resident of the country in which he has his “habitual abode;” if he has his habitual abode in both or neither, he is a resident of the country of which he is a citizen;” and finally, if he is a citizen of both or neither, he is a resident of the country as agreed to by U.S. and Canadian tax authorities. Form 8833 Required - Even though this alternative may avoid having to rely on timely filing Form 8840, the IRS requires timely filing of Form 8833 “Treaty-Based Return Position.”

[Steven]

If you were resident in Canada you could claim the tax treaty provisions and the substantial presence test becomes basically academic in that situation in all but rare circumstances (i.e. you've been claiming non-resident status for years and years but why would you do that anyway).

However your tax home is not in Canada, it's somewhere else so it becomes more important in that situation.

Frankly I wouldn't worry about it if you're just visiting the US though. The substantial presence test is only an indicator of where you're resident for tax purposes, it's not the final word on it, it's just one thing the IRS considers. If you clearly have closer ties to another country and clearly have non-immigrant intent then you're not resident for tax purposes. You need to pay taxes on US-source income, but ordinary things like bank interest are exempt anyway. The thing you would most likely get hit with is if you rented out your property, then you would have to pay US income taxes on that income and have to file a 1040NR.

Read IRS publication 519.

[bernard]

Once again thank you Steve. So bottom line is as long as I am not in the US for longer than 183 days in any one tax year and no matter where my principal residence is and not earning any income in the US and I have completed the W8 form I am fine.

[Steven]

Pretty much, even if you were there longer than 183 days it doesn't automatically mean you're resident in the US for tax purposes, it's just one method of establishing it.