Snowbirds tax alert
It’s no secret that since the global economic crash of 2008, the U.S. has been working hard through the IRS to boost its economy. First came the Foreign Account Tax Compliance Act (FATCA) and now, in an ironic twist, two new pieces of legislation are targeting Canadian retirees who choose to escape the winter chill each year by moving to Florida for a few months –the state credited with starting the financial collapse.
Currently, Canadians can spend up to 182 days of the year in the U.S. without triggering the ire of U.S. immigration officials. A reform bill introduced in the U.S. Senate last April is looking to extend that timeframe. The Jobs Originated through Launching Travel or JOLT Act would up the annual limit to 240 days or up to eight months. Who’s eligible for a Canadian retiree visa? Canadian citizens age 55 or older who maintain a residence in Canada and own a residence or have a rental agreement in place for the duration of their U.S. stay. Anyone who wants the visa cannot work while in the U.S. and cannot seek assistance or benefits.
While on the face of it, this is a good thing–certainly for the U.S., which, as desired, would benefit from increased snowbird spending–and for Canadians who enjoy their time in the U.S. But it could come at a cost. Canadians granted a retiree visa could become subject to U.S. income and estate tax. As well, the Act may affect provincial health plans and coverage here at home.
While it looks like the Act is likely to pass, it is unclear when it will take effect. Stay tuned.
Hand in hand with JOLT is the Entry/Exit Initiative, which is very clearly scheduled to come into effect June 30, 2014. Part of a larger cooperative effort between Canada and the U.S. called Beyond the Border: A Shared Vision for Perimeter Security and Economic Competitiveness, this initiative will see the cross-border neighbors share information on people entering and leaving each country.
To this point, any Canadian or U.S. residents traveling to and staying in the U.S. or Canada respectively operated on the honor system and kept track of their own comings and goings. Now, for the first time, both countries will be able to determine for themselves the number of days their citizens spend in each country.
Described as an effort to promote security and drive competitiveness, there can be negative repercussions if you overstay your welcome in the U.S. For example, if you are in the U.S. more than 180 days in a rolling 12 month timeframe, you could be deemed to be unlawfully present and banned from travel to the U.S. for three years. The ban jumps to 10 years if you are unlawfully present for more than 365 days.
You also risk being considered a U.S. resident for tax purposes and could be subject to tax on worldwide income and liable for U.S. estate tax. On this side of the border, you risk no longer being considered a Canadian resident, which means you are deemed to have disposed of all your assets and as such you’ll have to pay tax on the gain from that sale.
There is a lot going on here and the potential impact could generate significant tax costs. Be sure to do your research and understand what is required to remain in compliance with these new regulations.