Financial Planning

Clients who winter in the U.S. may soon be able to stay longer

By Tessie Sanci |

Proposed U.S. immigration legislation may change the number of days your "snowbird" clients can spend in the U.S.

The proposed Jobs Originated through Launching Travel Act has a provision that would allow snowbirds to remain in the country for up to 240 days per year — up from the current limit of 180 days — under a proposed "retiree visa." But that bill has not yet become law, says Terry Ritchie, director of cross-border wealth services with Cardinal Point Wealth Management in Calgary. So, the 180-day limit is still in effect.

Your snowbird clients should know of other restrictions and regulations that might affect them, such as tax obligations.

Substantial presence test


Snowbirds who meet a "substantial presence test" may have to file an income-tax return with the U.S. Internal Revenue Service. This test is a calculation that takes into account the number of days a foreigner spends in the U.S. over a three-year period, beginning with the current year.

So, you would take the number of days your client was in the U.S. in 2013, add one-third of the total days he or she was there last year and add one-sixth of the total days your client was there in 2011. If this total is 183 days or more, including at least 31 days in the current year, your client is deemed a U.S. "resident alien" for tax purposes.

Canadians can receive an exemption from filing a U.S. tax return by filing a "closer connection exception statement for aliens," form 8840, which states the client has a closer connection to another country. Snowbirds are eligible to file this form only if they were in the U.S. for less than 183 days during the current calendar year.

U.S. income
Snowbird clients must keep in mind that their taxable status changes if they receive income by renting or selling U.S. property, Ritchie says, regardless of filing the form 8840. However, they still should fill out the form, which will exempt them from paying taxes based on their worldwide income, as opposed to solely on net value of rent or sales proceeds in the U.S.

Keep it honest
Warn your clients about fudging these numbers. As of June 30, 2014, Canada and the U.S. are set to implement the final phases of a plan in which both governments will share entry and exit information on all travellers crossing the border.

With the final parts of the entry/exit initiative of the Perimeter Security and Economic Competitiveness Action Plan in place, both governments will have easier access to information on the dates on which travellers entered and exited both countries.

This is the first instalment in a two-part series on advising snowbird clients. Next: Four tips for snowbird clients.