10 Important Pieces of Advice for Canadian Snowbirds
Here at Knightsbridge Foreign Exchange, we have a lot of experience working with clients who seek a warmer winter. Canadian snowbirds that travel down south to our bordering neighbour (the US) for a brief getaway have a right to increased peace of mind. There are many tax tips and travel considerations that closely link to the snowbird lifestyle, and we’re hoping to give you an introduction to make your trip more financially sound.
In an effort to make your travels more affordable, KnightsbridgeFX offers highly competitive exchange rates on USD among other popular currencies. Call and speak to one of our company representatives for a quote and compare it to the quote provided by your primary bank – you could save 2% or more just by making the switch to KBFX!
#1 Understand the 183-Day Rule
Although virtually all reputable travel agencies will mention this before you depart Canada, make sure you come to terms with the “183 day” rule for US non-resident visitors. In the simplest terms possible, if you decide to spend over 183 days (roughly half a year) south of the border then you may be eligible for IRS taxation.
One important thing to note about the “183 day” rule is that it carries over three calendar years with different weightings for each period. If you’re travelling in 2020, then one day in the US equals one day on your record. However, if you spent time in the US in 2019, each day would be recorded and worth 33% and US visitation days from 2018 would be recorded and worth 16%.
In other words, if you only spend 135 days in 2020 you still might fail the “183 day” test and therefore owe dues to the IRS. Spending 100 days in the US in 2019 would count as 33 days on your record, and also spending 100 days in 2018 would count as 16 days on your record. Therefore, your current standing would be 184 days which is over the allowed amount. Make sure to calculate this beforehand, as your situation is likely different from this example.
||Days Spent in US
#2 Protect Against the 183-Day Rule
The truth is, if you take the time to properly prepare a few legal documents as a Canadian snowbird there are ways to avoid duties to the IRS – even if you go over your allotted 183 days. Seasoned Canadian snowbirds will tell you about the benefits of filing form 8840 with the IRS, which proves your close affiliation with Canada over the United States.
By filling out some paperwork and providing the following documents, you can dodge US taxation:
- Proof of permanent residence in Canada
- Government issued personal identification (drivers license, passport, etc)
- Proof of Canadian asset ownership (cars, real estate, jewellery, etc)
- Proof of businesses or income-generating establishments set up in Canada
- Location of family in Canada
- Proof of Canadian vote eligibility/registration
#3 Rent is Your Friend
If you can only realistically see yourself spending a few months of the year in the US, it might not be worth it to buy another home south of the border. If you claim ownership of property in the states, regardless of where you’re situated, you’ll be indebted to the IRS for property tax.
To avoid this unnecessary taxation, you can just simply rent out a place to save money. Apart from the financial benefit, renting temporary homes in the US means that you never have to live in the same place twice. Having this added flexibility means you get to truly live out your snowbird adventure to its full potential.
#4 Exercise Caution with Profitable Property
If you were planning to purchase real estate in the US and use it as income generating rental property, you can be subject to taxation from both the CRA and IRS. Although the CAN-US treaty can alleviate some of this dual-obligation, it’s important to stay notified of this.
Another very important consideration is how you go about selling the property. Since the USD is currently favoured to the CAD, a ton of snowbirds are selling off any real estate assets south of the border to acquire more CAD at a great exchange rate. Just know that if you do happen to make a gain on the sale, you’ll be faced with some dues to the IRS.
#5 Have Your Documents Ready
When travelling outside the country for any reason, efficiency is the name of the game. Being both cost and time efficient can save you a lot of headache, especially if you’re prepared for contingencies. The best way to maximize your preparedness is to have all of your personal paperwork at the ready and near you at all times:
- Personal Identification (passport, drivers license, etc)
- Living arrangement documents (rent agreements, mortgages, ownership status, etc)
- Relevant IRS and CRA documentation
- Travel receipts
#6 Take Care When Leaving Your Province
Even though you can practically spend 183 days guilt-free in the United States, there are some provincial implications at home to know about before you pack your bags. Each province or territory in Canada can have their own residency laws and you’d be best served to read up on them prior to exiting.
Anytime you stay outside of your province for a prolonged period, you can be at risk of losing either your provincial health care plan or residency status. Check out how many risk-free months you can leave during the year just to be safe.
#7 Note Down Your Entrance and Exit
Make sure to keep a permanent record of the exact specified dates you arrive at and depart from the United States. At the border you’ll be required to provide an accurate timeframe as well as a reason for your stay.
The board in charge of this procedure is the US Department of Homeland Security, and your best course of action is to request and fill out the I-94 Form. This file will formally declare when you made an entrance and exit into the country.
#8 Find the Right Visa
Entering and living in the US for prolonged periods with the right snowbird visa can leave you “stranded” in terms of residency status. For instance, if you’ve been living it up in the states for more than half a year with improper visa status you could be classified as an illegal alien.
Being categorized under illegal alien status would place all of your US assets in a risky scenario; on top of that you may even be prohibited from re-entering the US in the future.
#9 Read Up On Your Location
Prior to deciding where you’ll reside for the winter, it’s a good idea to understand everything you need to know about the state rulings. Whether it’s for legal or practical reasons, getting a firm grip of your environment is always a great strategy.
This becomes especially vital when you’re thinking about purchasing foreign real estate in the US. Some states, specifically snowbird-favourite states like Florida, have stricter laws on home buying for non residents. In those situations, locals are more favoured when it comes time for dues such as property tax.
#10 Get Professional Advice
Although you may treat this brief guide as a starting point, by no means is it an end source for your snowbird education. Hiring the right lawyers and consulting with snowbird-lifestyle experts can not only broaden your understanding of the matter, but also help save you money in the long run.
A qualified attorney could easily look over your unique situation and guide you through the tax implications, insurance recommendations, and lifestyle changes related to being an effective snowbird.