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October 2013

LIFE LETTER MATURE

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The 183 day rule

For many retirees, thoughts are now turning to heading to warmer climates for a few months this coming winter. A few years ago, the rules changed regarding the residency test in the United States and may catch some Canadian snowbirds off-guard.

With the U.S. national debt approaching $17 trillion, the Internal Revenue Service (IRS) has no choice but to pursue new sources of revenue. If you plan on migrating south for the winter and spending several months in the States, you must know the rules in order to avoid being deemed a resident.

First, the IRS has its own way of calculating a day and it isn’t necessarily 24 hours. Let’s say you catch a 1:00 a.m. red-eye flight home. The IRS deems that any part of a day spent physically on U.S. soil (exceptions may apply) counts as a whole day under their substantial presence test. So, the IRS will consider this a whole day when calculating the number of days you were there.

Second, when calculating your substantial presence, days spent in the U.S. in the current calendar year and in the previous two calendar years are used. If the total exceeds 183 days, you may be deemed a U.S. resident for income tax purposes. Take all of the days spent in the U.S. during the current year (say 2013), add one-third of the days you were there in 2012 and one-sixth of the days there in 2011. If the total is 183 days or more, you may have to pay some U.S. taxes.

Jill was in Arizona for 90 days at the beginning of 2013 and will be heading there again in a few weeks for another 60 days at the end of the year for a 2013 total of 150 days. She was there for the same number of days in both 2012 and 2011. Doing the math, the total comes to 225 days which deems her to have a substantial presence in the U.S. for income tax purposes.

She may be able to get around this by filing an IRS Form 8840 to apply for a “closer connection” exemption. Of course, Jill could always spend just 30 fewer days per year there so her number will be 180. When travelling down, you may need to prove that you have the means to support yourself and that you plan on returning to Canada.

Provincial Health Care Insurance only pays a small portion of any medical expenses outside your province, so get travel insurance.

This article is for information purposes only and not intended to provide tax advice.

Snowbirds be aware – because it’s the right thing to do.

Call Hans Mathisen today at (306)242-7042.
or email -
hans@mathisen.ca

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