Article by Marc-Andre Castonguay for the Times & Transcript published November 16, 2019 

For many Canadians, this is the time of year when preparations are made to get away from the cold winter and head to the warmer climate of the southern United States. Of all the preparation that goes into such a trip, be sure to carefully plan the length of your stay to avoid an unpleasant tax surprise.

I’m not a U.S. citizen, why would I be considered a U.S. 

jorge vasconez CpeUoLVTAs8 unsplashThe Internal Revenue Service (IRS) – the U.S. version of our Canada Revenue Agency – conducts a Substantial Presence Test. Simply put, if you spend too many days in the U.S., you could be required to file an income tax return in that country, in addition to your Canadian tax return.  

Under the Substantial Presence Test, if you are physically present in the U.S. for:
  • at least 31 days in the current year, and
  • at least 183 days over 3 years, including the current year and the prior 2 years,you will be considered a U.S. resident for tax purposes.With regards to the 3-year period, it’s important to note that the number of days for each year is counted differently. 
The numerical formula is:
  • 100% of days in the current year;
  • 1/3rd of days in the prior year;
  • 1/6th of days in the 2nd prior year.
Let’s say that Melanie, a Canadian citizen, spent 120 days in Florida each year from 2017 to 2019.Under the Substantial Presence Test, she would have spent 180 days, calculated as follows: 120 + (120 x 1/3) + (120 x 1/6) = 180. Melanie would not be considered a U.S. resident for tax purposes.

On the other hand, Scott spent the following number of days in Arizona: 
150 in 2019, 90 in 2018 and 96 in 2017. Based on the formula, Scott spent 196 days in the U.S. over the past 3 years and would therefore be considered a U.S. taxpayer.

It’s important to note that the number of days 
counted for the Substantial Presence Test are not limited to your winter getaway. If you spend a few summer days on beaches in Maine or go see your favorite NFL football team in October, short trips count too. Even if you just cross the boarder for a few hours and return the same day, it will count as a full day.

If the Substantial Presence Test is met (you have attained or exceeded the 183 days over 3 years), there are two exceptions that might prevent you from being considered a U.S. resident for tax purposes, as long as the proper forms are filed with the IRS:

  1. The closer connection exception, if you are in the U.S. for less than 183 days in the current year;
  2. The tie breaker provisions found in the Canada-U.S. tax treaty, if you are in the U.S. for 183 days or more in the current year.
In either case, you should consult a tax expert who is familiar with the U.S. tax code to ensure that the proper paperwork is filed on time. The penalties levied by the IRS for late filing are quite stiff.

Safe travels!