If you are a Canadian tax resident and are spending significant time in the US, you may also be considered a US tax resident and thus have US tax filing requirements for a given tax year. Although Canada uses a factual methodology to determine one’s tax residency based on the particular facts and situation of the taxpayer, the US has very specific rules which bases their tax residency determination on the number of days you spend in the US in any given calendar year or the number of days you spend in the US over a three-calendar year period, which is referred to as the substantial presence test.
If you spend 183 days or more in the US during a calendar year, you will be considered a US tax resident for the tax year and will be required to file a US tax return reporting world-wide income and you may also be required to file any informational returns and forms as required by US tax law as well. This can include reporting your non-US financial accounts (ex. Canadian bank accounts, RRSPs, TFSAs, brokerage accounts, etc.), reporting interests in Canadian trusts as a beneficiary or trustee or reporting specific details regarding the ownership of privately held Canadian corporations. If you are a Canadian tax resident and you spend 183 days or more in the US for a calendar year, you can claim a treaty position under the Canada/US income tax treaty, referred to as the Treaty Tie-Breaker position, to file as a non-resident of the US, thus avoiding being taxed in the US on world-wide income but keep in mind that this treaty position claim does not exempt you from filing the information returns or forms which may be required as mentioned above. Thus, if you are planning on spending 183 days or more in the US during a single calendar year, you should discuss the matter with a US tax professional to ensure you are ready to file the appropriate returns and forms.
If the substantial presence test is met, the individual will be considered a US resident and will likely need to file a US tax return and potentially other tax filings. The substantial presence test only applies to individuals present in the US for more than 31 days or more in the current year and is calculated as the total of the following formula: 100% of days spent in the US in the current year; plus 1/3 of days spent in the US in the prior year; plus 1/6 of days spent in the US in the second prior year. If the individual is physically present in the US for 31 days or more in the current year and the above formula results in a total of 183 days or more, you will qualify as a US tax resident and will likely need to file a US tax return reporting world-wide income and you will also be required to file any informational returns and forms require by US tax law as well. If you are a Canadian tax resident and you meet the substantial presence test but did not spend 183 days or more in the current calendar year, you can file Form 8840 “Closer Connection Exception Statement for Aliens”, thus avoiding having to file a US income tax return or the information returns or forms required as mentioned above.
It is important to note, that a day in the US includes any part of a 24 hour period that the individual is physically on US soil. There are exemptions to the day count for certain individuals on student visas studying in the US and for certain commuters who commute regularly to the US for work.
The treaty position to file as a non-resident of the US and the closer connection exception are not available for US citizens or Green Card holders as these individuals are required to file US tax returns each year to report world-wide income regardless of where they are residing.
In addition, if you are spending significant time in the US, you may want to discuss your personal situation with an immigration lawyer to ensure you are not violating any US immigration laws.
To get your US filing started, contact your Rise Advisor.