United States Border Crossing and Residency

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United States Border Crossing and Residency

April 8, 2014

Tax Question:

How will the new United States (U.S.)/Canadian joint initiative impact cross-border travel and should you be keeping track of days spent in the U.S.?

Facts:

Beginning June 30, 2014, both Canada and the U.S. will implement the final phase of the Entry/Exit Initiative of the Perimeter Security and Economic Competitiveness Action Plan. There will now be a new system between Canada and the U.S. in which they will share information on people entering and leaving their respective countries. Starting next year, both countries will know in real-time, how many days you have spent in each country.

Discussion:

Before this joint initiative, each country counted one-day presence only when they entered the country and not when they left the country. Therefore, the total number of days spent in one country was not shared between Canada and the U.S. Many Canadians travel to the U.S. to take advantage of the increase in duty-free limits and to vacation in places like Arizona and Florida (ie. snowbirds). If you spend close to half the year in the U.S., you may be considered a U.S. tax resident by the Internal Revenue Services (IRS). There are not many Canadians who actually keep track of how many days they are in the U.S. in a year and there are tax consequences if they exceed the limit. These tax consequences are:

File a U.S. tax return – U.S. residents and U.S. citizens are taxed on their worldwide income.
Liability for Canadian departure tax – Canada Revenue Agency (CRA) may consider you not a resident of Canada and you will have to pay tax on your disposition of assets and gains.
Loss of provincial health care – Once you are no longer a resident, you may lose your eligibility for provincial health care benefits.
Liability for U.S. estate tax – U.S. residents will be taxed on the fair market value of their worldwide assets upon death.

To avoid these potential tax consequences, Canadians should be keeping track of their days spent in the U.S.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.