How Flying South for the Winter Affects your Finances

Posted 14 Jan 2017 by Melissa Allan

Planning to be a snowbird? Be careful to plan and ensure that you’re not deemed a United States resident, or else the American Internal Revenue Service (IRS) could require you to pay income tax!

Count your days in the USA

The U.S. allows Canadians to stay up to 182 days per year without paying income tax (people from other counties can stay up to 90 days --Canadian perk, eh?) However, it’s not that cut and dry – the length of time you can stay is also determined by your living arrangement and there is a “substantial presence test” that comes into play. This test calculates the number of days you have spent in the U.S. over a three year term.  If it’s more than 183 days you may have to pay U.S. income tax. 

We sometimes hear of people who get into situations where they pay both US and Canadian income taxes because of lack of research and advice from trusted advisors. The good news is that you can avoid this by filing a form (8840) with the IRS. 

Tax liability is not only time-tested

Even if you spend fewer than 6 months per year in the U.S. and/or file the 8840 form you could still be deemed a U.S. resident. This is because it’s not only based on where you physically are throughout the year but also where you are “most connected”.  If you work in the U.S., and/or have a home in the U.S.  and/or family in the U.S. you very well may be faced with the complications of filing a U.S. income tax return. 

Don’t forget life and health insurance down south

Other considerations are medical insurance. You most certainly don’t want to be in the U.S. without insurance and most provincial insurance plans require you to be in your home province at least six months of the year to remain insured under provincial plans. Even when covered, your provincial medical plan would offer very limited coverage amounts when you travel abroad.  It is imperative you have some form of private health insurance when travelling to the U.S. If you don’t, you are leaving yourself at huge financial risk. 

My father in law had a stroke in the U.S. two years ago. His insurance was a blessing. 

Will I still receive Old Age Security (OAS) or the Canada Pension Plan?

One good thing the Canada Revenue Agency (CRA) has done in recent years is phasing out mailing cheques in favour of electronic deposit.  Most Canadians are set up for electronic deposit of their government pensions so your OAS and CPP entitlements should not change based on your snowbird status.  Any registered retirement income fund (RRIF)/employer pension can also be deposited into your bank account. 

What about my Canadian investment accounts?

From an investment advisor point of view, our mutual fund dealer doesn’t allow us to make changes on our clients’ accounts if they have a U.S. address on system.  You would want to be sure that you still maintain a Canadian address for mailing purposes and of course because you are indeed still a Canadian citizen.  You can have CRA forward your mail to your temporary U.S. address or have a friend do so. 

These are just a few of the things to consider before travelling abroad. With our dollar the way it has been I do know of a few people who will be shortening their trips or simply not going but many of you will so this list is a handy reminder of your considerations before leaving for the sunny southern US.