Snowbirds

IRS Classification

As a snowbird, the IRS will classify you either as a resident alien or a non-resident alien for U.S. tax purposes: 

For all people who head south for the winter you should be aware of a few tax facts.  If you spend 31 days or more south of the border, you may fall subject to certain rules imposed by the Internal Revenue Service (IRS).  The IRS is the American equivalent to Canada Customs & Revenue Agency and is responsible for enforcing the U.S. tax code and collecting income tax.

A resident alien is subject to U.S. income tax on their worldwide income, which includes income earned in Canada. There are rules which prevent you from paying tax on the same income in both countries. Some income that is exempt in Canada (e.g., 25% of capital gains, income earned inside an RRSP) is not exempt in the U.S.  Some expenses deductible in Canada (e.g., RRSP contributions) are not deductible in the U.S. As a result, resident aliens could incur a U.S. tax liability, even if no income was earned there.

A non-resident alien is only subject to U.S. tax on income earned in the U.S. This income would also have to be claimed in Canada, but the Canadian tax can be reduced by the amount of U.S. taxes paid.

What makes you a resident alien for U.S. tax purposes?:

You will be treated as a resident alien if:

• You were present in the U.S. for 31 days or more during the year and 

• The following adds up to 183 or greater:

Certain days don’t count in the above formula, e.g., days you are forced to stay in a U.S. hospital if you become sick while in the U.S. or days you attended school in the U.S.  

If you think the IRS has won the battle, there is a final way out of the U.S. tax system:

If you meet the above test for residency, you may still be considered a non-resident alien if you can establish that you had a closer connection to Canada.  To meet this "closer connection exception" you must meet the following criteria:

• Not have been present in the U.S. for greater than 183 days during the year.

• Maintained a tax home in Canada

• Have a closer connection with Canada than the U.S. Examples of factors which establish this are:

1. location of bank accounts

2. location of business activities

3. family location

4. automobile location

5. place where you maintain social, cultural, or religious memberships

6. place where your driver's license is maintained

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