Articles Posted in Canadian Snowbird Issues

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So let’s walk the Form 8840, and discuss some of the more uncertain questions. Again, we’re focusing on Canadian snowbirds (and not necessarily people from foreign countries other than Canada).

Part 1

Question 1 asks you the following: “Type of U.S. visa (for example, F, J, M, etc.)”. We suggest the Canadian snowbird answer the “B-2 Visa”. We say this even though Canada is a visa exempt country (so theoretically answering “no visa” on Question 1, or “Canadian- no visa” should be fine too. This is the typical visa utilized by a tourist to the United States. This question is a little challenging for the Canadian snowbird, because they generally simply present a passport at the border, and not an official visa. The US and Canada really do have a special relationship, and so typical formalities are not always required for Canadians visiting the US (and Americans visiting Canada). While a Canadian snowbird visiting the US may not need a visa. the proper answer on the Form 8840 is probably citing the B-2 Visa (the tourist visa).

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So, like so many Canadians in the Palm Springs/ Palm Desert area, you’ve determined you probably should fill out the Form 8840. Why? Because you’re in the United States year in, year out, over 4 months but less than 6 months in a calendar year (and if you’re in the Coachella Valley right now, let’s face it, who wouldn’t want to be here as much as possible…save July and August that is). And if you are in the US more than 4 months every (calendar) year, and you don’t fill out the Form 8840, the risk you take is that the IRS will deem you a US tax resident for the taxable year (as they are permitted to do if you are here, year in, year out, over 4 months a calendar year). While that may not be the end of the world (you can always hire a guy like me to get you out of that situation, and it will not lead to a double tax (once in Canada and once in the US)), it will lead to a logistical headache, which you will have to straighten out. So, be safe, complete the Form 8840 if you’re in the US every year between 4 to 6 months, like so many Canadian snowbirds are in this area of California.

When is the Form 8840 Due?

You must complete the Form 8840 by June 15 (the due date of the IRS Form 1040NR) of the year after the year for which you are reporting (so for the 2012 Form 8840, you should send it in by June 15, 2013). You actually have until the due date (June 15) plus extensions, which would be months later (so, yes, you could send in your 2012 Form 8840 in July 2013). But let’s not do that. You want to get the Form 8840 in by June 15 of the year after the year to which the form relates (so for 2012, let’s send them in by June 15, 2013).

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We’ve talked about the need for Canadians (or any non-US citizen who regularly spends between 4 to 6 months in the US) to fill out the Closer Connection Form (the IRS Form 8840) before. Well, it’s a good time of year (Spring) to review this rule again.

Who Needs to Fill Out the Closer Connection Form?

Any non US citizen individual who has a “substantial presence” in the US must fill out the Form 8840 (every year they have a substantial presence). Is there a mathematical formula designed to determine whether you have substantial presence” in the US (and then need to fill out the Form 8840)? Yes. And I’m going to spell out the formula in a moment. BUT IF YOU ARE IN THE UNITED STATES EVERY YEAR BETWEEN 4 AND 6 MONTHS, FORGET THE FORMULA AND JUST FILL OUT THE 8840…THE FORMULA IS JUST DESIGNED TO DETERMINE WHETHER YOU SHOULD HAVE A SUBSTANTIAL US PRESENCE AND NEED TO FILL OUT THE 8840 TO BEGIN WITH. IF YOU ARE IN THE US EVERY YEAR, YEAR IN YEAR OUT,BETWEEN 4 AND 6 MONTHS, DON’T WORRY ABOUT THE FORMULA AND JUST FILL IT OUT EVERY YEAR!!!

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let’s pick up where we left off at the end of part 1….

Filing a Claim with an Insurance Provider

If filing a claim, the insurance provider will want evidence to support the claim. This may include in addition to medical bills, a copy of the electronic travel ticket, a copy of the passport, health-card numbers, family doctor information, and travel insurance details including contract or certificate numbers.

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We will finish our entry on Canadians doing business in the United States shortly, but let’s focus on health care for the moment.

Will Canadian Health Care Coverage Pay for Costs Incurred Outside the US?

Canadian provincial health care coverage may not pay for all the health care costs incurred outside the province or country, and the difference can be substantial. For example, B.C. pays $75 (Cdn) a day for emergency in-patient hospital care, while the average cost in the U.S. often exceeds $1,000 (US) a day, and can be as high as $10,000 (US) a day in intensive care. Reimbursement is made in Canadian funds and does not exceed the amount payable had the same services been performed in the province. Any excess cost is the responsibility of the beneficiary. For complete travel protection for emergency care resulting from an accident or sudden illness, additional medical insurance should be purchased from a private insurance company. This applies whether one is going to another part of Canada or outside the country, even for only a day

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Frequently at gatherings I’m asked tax questions related to Canadians and their tax issues in the US. At a recent holiday gathering, a nice gentleman, who is a terrific interior designer in Calgary I believe, asked about the possibility of doing some interior design work for Canadians who also had a second home in California (most likely in the Palm Springs area). So he asked me, if he did some interior design work for Canadian customers in their California homes, would he be subject to US (and California for that matter) tax?

A terrific question, so let’s review….

First, Is it a Big Deal if the Canadian has to Pay US Tax to Do Business in the US? I Don’t Think So…

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On December 8th and 9th, Manes Law spent a terrific weekend as sponsors at the CanadaFest at the Palm Springs Convention Center. I was amazed at how many Canadians came up and kept asking me the same question: “how many days a year can I stay in the US?” And frequently they would follow up with this supplement:”I heard if I leave the US and then return to the US in less than 30 days (like so many Canadians are doing right now as they go back to Canada for Christmas, but will soon come right back to the US in early January), then the days that I’m out of the US count in my six month computation, is that true?” Boy oh boy I thought, what is the Canadian rumor mill up to now? This is complete nonsense.

But was I right?

I Assumed They Were Asking About How Many Days a Canadian Could Stay in the US Under the US the Tax Law

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If you read my most recent post on the importance and (I think really) necessity that Canadian snowbirds obtain US individual taxpayer ID numbers an “ITINs”. Remember, Canadian snowbirds must complete an IRS Form W-7 to get a taxpayer ID number, but there’s only certain occasions when the IRS will actually comply and issue you one (such as when you fill out a US tax return or when you want to be relieved of the awful mandatory US tax withholding obligation on renting or selling US real estate). It’s now a good time to review the process for how the Canadian actually gets an ITIN.

What Documents Must the Canadian Snowbird Submit to Get an ITIN?

An original valid passport is the best document you can give. If you submit that, that’s all you need to give. If you don’t submit a passport, you’ll need multiple documents to prove both your foreign status and identity. The documents must be current, verify your identity (that is, contain your name), and support your claim of foreign status (that you’re from Canada). Among the group of documents which you may use are national I.D. cards, visas issued by U.S. Department of State, U.S. or foreign military identification card, civil birth certificates, medical and school records, U.S. state or foreign driver’s licenses, U.S. state identification card, foreign voter’s registration card and U.S. Citizenship and Immigration Services photo identification. Again, you’ll need multiple documents if you’re not using the passport.

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We are asked constantly by Canadians why they have to go through the pure drudgery of getting a US taxpayer ID number. And apparently, drudgery is absolutely the correct word as now the IRS wants to review either your actual passport, which is the best stand alone document you can provide (which means it may be out of your possession in the hands of the IRS for a few weeks), or a combination of a series of additional documents. We’ll talk in our next blog post about how you actually get the taxpayer ID number (via the Form W-7). But why does the Canadian snowbird need to get it? The answer is simple- it will cost you money if you don’t.

You will Need A Taxpayer ID Number to Avoid Mandatory 30% Withholding When You Rent Your US Property.

Without a taxpayer ID number, the Canadian Snowbird who rents US real estate must have the tenant or property manager withhold 30% of gross rent payments (and forward these amounts to the IRS). If the tenant or prop manager fails to withhold, the IRS will look to the Canadian for the withholding tax. However, if the Canadian snowbird completes a Form W-8ECI withholding certificate (which requires a US taxpayer ID number to get) and gives it to the tenant or property manger instructing them not to withhold, and then files the Form 1040NR tax return by June 15 of the next year, no withholding is required. This is a great option for the Canadian snowbird because it: (A) Allows the taking of deductions (e.g., property taxes, mortgage interest and depreciation) and (B) the tax rate is likely lower, much lower, than 30%.

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