Canadian Snowbirds Owning Property and Vacationing in the US.
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So many Canadians spend extended periods of time in the States that we are even given a nickname; Snowbirds. Snowbirds, who own property in the States should be aware of tax ramifications. Snowbirds should also be aware of various triggering events depending on the length of time spent in the States.
30% Flat Tax
If, as a Canadian owner, you rent out your U.S. vacation home, the rental
income you receive is subject to a flat 30% tax in the U.S. before any
deductions for expenses incurred in earning this income. As the tenant
must withhold and remit this tax to the IRS, the Canadian landlord does
not have to file a U.S. personal income tax return for that year, provided
the taxes are remitted.
Rental Expenses
To benefit from the deductions for your rental property expenses, you
must elect to be taxed within the U.S. on a net basis. Before making this
election, you should be aware that you must rent the property for a minimum
length of 15 days per year, or the deductions will not be allowed. Even
if you meet the 15-day requirement, there are other rules that further
limit the amount of expenses considered deductible.
Having made this election, you will be required to file a U.S. return annually. This election remains in force for subsequent years and can only be revoked with the consent of the IRS. When you file, your rental income will be subject to the graduated tax rates applicable to a U.S. resident on the taxable income realized from a rental activity.
CCRA's Share
Back home, you must report this U.S. rental income on your Canadian personal
income tax return. You may allocate property expenses in relation to your
personal and income generating use. The U.S. taxes may provide some relief
as a foreign tax credit against the Canadian income taxes payable on your
net rental income.
For both the U.S. and Canada, you should maintain records of your personal and rental use of the property and related expenses.
Mortgage
The property will have to be mortgaged by a U.S. financial institution.
The lender may require that the rental property be inspected periodically
to ensure the value of the property.
Extended Stays
If you plan to stay at your vacation property in the U.S. for long periods
of time, you should also seek tax advice about the "substantial presence" rules. Under U.S. tax laws, you could be considered a U.S. resident for
tax purposes.
Estate Taxes
If you die while owning U.S. real property, your estate could also be
subject to U.S. estate taxes. Depending on the value of the U.S. property,
this could be a substantial liability for your estate.
If you spend time in the U.S., you may have to file a U.S. tax return. Your obligation as a Canadian resident to file a U.S. tax return varies according your status as defined by the U.S. As a general rule, if a foreign national has never spent more than 121 days in the U.S. in any tax years, he/she will never be considered a U.S. resident under the "substantial presence" test.
Staying less
than 31 days in a calendar year
If you are present
in the U.S. for less than 31 days in a calendar year, you are considered
just a visitor, and you do not need to worry about any U.S. tax obligations.
Staying between
31 and 183 days in a calendar year
If you are present in the U.S.
for 31 days or more, but less than 183 days, in a calendar year, you may
meet what is called the "substantial presence" test. To check,
add up the following:
All the days you
spent in the U.S. during the year;
1/3 of the days you spent there the preceding year; and
1/6 of the days you spent there the year before that.
If the total is 183 days or more, you meet the substantial presence test and you are subject to U.S. tax. For example, if you spent 130 days in the U.S. in each of 2003, 2002 and 2001, your calculation would come to 130 + 43 + 22 = 195 and you meet the substantial presence test.
If your primary residential ties are with Canada you can still avoid paying U.S. tax by filing the IRS Form 8840, Closer Connection Exception Statement for Aliens. This form must be filed for each year that you meet the substantial presence test. Failure to file when required to do so may result in fines of up to $1,000 for each source of income received, even if no tax would have been payable on your U.S. tax return!
Staying more
than 183 days in a calendar year
If you are present
in the U.S. for 183 days or more in a calendar year, you are considered
a "resident alien" for U.S. tax purposes and must file a regular
U.S. tax return.
Iif you are a dual resident, the Canada United States tax treaty may allow you to claim non-resident status in the U.S., enabling you to file a non-resident return instead. To claim this relief, you must complete Form 8833 and attach it to a timely filed non-resident U.S. tax return. As a non-resident, you are taxed only on certain U.S. source income rather than your world income. However, you should seek advice before choosing this option, as filing a non-resident return does not always result in a lower tax liability. In addition, it may affect your qualifications for a green card or residency permit.
If you require medical assistance of any kind while overseas, in the United States or even in the next province – including medication, physician visits, or a hospital stay – it will cost you. Your provincial or territorial health insurance only covers you for specific health expenses incurred in your home province or territory.
Many hospitals in the United States and other countries won't even admit patients lacking medical coverage of some kind.
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