SHOULD YOU BE TRACKING DAYS SPENT IN THE US? NEW US/CANADA JOIN INITIATIVE BEGINS JUNE 30TH.

Reposted with Permission from Gilmour Knotts Chartered Accountants, Original Article


Question

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

Facts

Beginning June 30, 2014, both Canada and US will implement the final phase of the Entry/Exit Initiative of the Perimeter Security and Economic Competiveness Action Plan.  There will now be a new system between Canada and US in which they will share information on people entering and leaving their respective country.  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 US.   Many Canadians travel to the US to take advantage of 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 US, you may be considered a US 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 US in a year and there are tax consequences if they exceed the limit.
These tax consequences are:
(1) File a US tax return — US residents and US citizens are taxed on their worldwide income.
(2) 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.
(3) Loss or provincial health care — Once you are no longer a resident, you may lose your eligibility for provincial health care benefits.
(4) Liability for US estate tax — US 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 US.

Recommendation

If you would like our help with understanding the tax consequences of this joint initiative and how you can prevent being deemed a US resident,  please contact Gilmour Knotts.