The term Snowbird is given as a nickname to those Canadians who reside for extended periods south of the border.
A Snowbird is more than likely a property owner in the States and almost surely residing in Florida - the number one destination in the world.
Snowbirds who own property or real estate in Florida or elsewhere in the US should be aware of a few key factors when looking at Tax implications and profits depending on the length of time spent in the States. These rules are easy to follow and should not put off anyone thinking of buying a property to own or rent out.
Any Canadian seeking to remain in the vacation property in the U.S. for long periods of time should also seek tax advice about the "substantial presence" rules as U.S. tax laws could consider the owner as a U.S. resident and tax accordingly.
Canadian rental income from a property south of the border is subject to a flat 30% tax before any deductions for expenses incurred in earning this income. The tenant must withhold and remit this tax to the IRS, with the Canadian landlord not having to file a U.S. personal income tax return for that year, provided the taxes are remitted.
If a Canadian Snowbird wishes to benefit from the deductions for your rental property expenses he or she must elect to be taxed within the U.S. on a net basis. Before making this election, you should be aware that you must rent the property for a minimum length of 15 days per year, or the deductions will not be allowed. Even if you meet the 15-day requirement, there are other rules that further limit the amount of expenses considered deductible.
Having made this election, you will be required to file a U.S. return annually. This election remains in force for subsequent years and can only be revoked with the consent of the IRS. When you file, your rental income will be subject to the graduated tax rates applicable to a U.S. resident on the taxable income realized from a rental activity.
Canadian's must note the Tax's paid on their returns to the CCRA on their personal income tax return. You may allocate property expenses in relation to your personal and income generating use. The U.S. taxes may provide some relief as a foreign tax credit against the Canadian income taxes payable on your net rental income.
For both the U.S. and Canada, you should maintain records of your personal and rental use of the property and related expenses.
The property will have to be mortgaged by a U.S. financial institution. The lender may require that the rental property be inspected periodically to ensure the value of the property.
If you die while owning U.S. real property, your estate could also be subject to U.S. estate taxes. Depending on the value of the U.S. property, this could be a substantial liability for your estate.
If you spend time in the U.S., you may have to file a U.S. tax return. Your obligation as a Canadian resident to file a U.S. tax return varies according your status as defined by the U.S. As a general rule, if a foreign national has never spent more than 121 days in the U.S. in any tax years, he/she will never be considered a U.S. resident under the "substantial presence" test.
If you are present in the U.S. for less than 31 days in a calendar year, you are considered just a visitor, and you do not need to worry about any U.S. tax obligations.
If you are present in the U.S. for 31 days or more, but less than 183 days, in a calendar year, you may meet what is called the "substantial presence" test. To check, add up the following:
All the days you spent in the U.S. during the year;
1/3 of the days you spent there the preceding year; and
1/6 of the days you spent there the year before that.
If the total is 183 days or more, you meet the substantial presence test and you are subject to U.S. tax. For example, if you spent 130 days in the U.S. in each of 2003, 2002 and 2001, your calculation would come to 130 + 43 + 22 = 195 and you meet the substantial presence test.
If your primary residential ties are with Canada you can still avoid paying U.S. tax by filing the IRS Form 8840, Closer Connection Exception Statement for Aliens. This form must be filed for each year that you meet the substantial presence test. Failure to file when required to do so may result in fines of up to $1,000 for each source of income received, even if no tax would have been payable on your U.S. tax return!
If you are present in the U.S. for 183 days or more in a calendar year, you are considered a "resident alien" for U.S. tax purposes and must file a regular U.S. tax return.
If you are a dual resident, the Canada United States tax treaty may allow you to claim non-resident status in the U.S., enabling you to file a non-resident return instead. To claim this relief, you must complete Form 8833 and attach it to a timely filed non-resident U.S. tax return. As a non-resident, you are taxed only on certain U.S. source income rather than your world income. However, you should seek advice before choosing this option, as filing a non-resident return does not always result in a lower tax liability. In addition, it may affect your qualifications for a green card or residency permit.
If you require medical assistance of any kind while overseas, in the United States or even in the next province – including medication, physician visits, or a hospital stay – it will cost you. Your provincial or territorial health insurance only covers you for specific health expenses incurred in your home province or territory.
And finally Snowbirds many hospitals in the United States and other countries won't even admit patients lacking medical coverage of some kind.
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