Canadian Tax Implications for Snowbirds

Canadians love to travel, especially to warmer climates during our long, frigid winters. Snowbirds, as they are sometimes referred to, get away from the cold to several popular southern US areas, such as Florida and Arizona, to name but two.  

If you are considering a snowbird option for yourself, you need to plan carefully, particularly from an income tax perspective. Let’s go into some details of the income tax related implications for Canadian snowbirds.

Unintended Tax Consequences for Snowbirds

When we mention to “plan carefully” for your southern stay over the winter, primarily, for tax purposes, we mean “don’t overstay”. Exceeding a certain number of days in the United States could expose you to unintended tax consequences both in Canada and the US.

The magic number in most instances is 183. That’s the number of days you should not exceed in your US stay in any given year. Once you’ve passed that threshold, you may be considered a US resident, for tax purposes. You might even fall into the resident if you meet a benchmark in something called the Substantial Presence Test (SPT) – by this calculation if you spend more than 31 days in the States consecutively, and pass the 183 day threshold for the current and two previous years, you may trip into resident status, for tax purposes. These calculations are actually somewhat more complicated than this brief summary – check with your accountant for full details. To avoid paying US income tax, the bottom line is to avoid overstaying as per the SPT requirements.

Filing your Taxes Regardless of Where You are Physically Located

You will need to file your Canadian tax return, regardless of where you happen to be, if you are a Canadian citizen or taxpayer. You will also have to report any income you may have earned outside the country, on your T1 income tax/benefit return. You will also be able to claim all deductions and credits allowable for this outside-the-country income. If you’ve already paid US income tax on such income, you will be able to claim this as a credit on your Canadian return.  

Keep in mind that there is no hiding from the Canada Revenue Agency (CRA) just because you happen to be staying outside the country for part of the year.

Canadians Owning or Renting United States Property

You should be aware that if you own or rent a property for a significant amount of time in the United States – typically greater than 15 days – that you may be subject to US taxation. This especially applies if you rent out your place to others, and therefore derive an income from that property. Once again, the actual tax obligations you may be facing are a bit murky and involve both the CRA and the Internal Revenue Service (IRS) in the States. Your accounting firm will be able to guide you in terms of what you may need to claim and also owe in terms of taxes from your property or investments in the USA.

Being a Snowbird Can Be Great. But…

While it’s great to get away from the Canadian cold, you need to be aware of the potential tax implications of being a snowbird. We hope you have found this article useful. We welcome your questions and comments – please contact us.

AMACC

Mahdi Songhori, MAcc