From: AlanBaggett@volcanomail.com   
      
   Canada: Beware Of The US "Snowbird Visa TAX BOMB!" :  CRA SOTW   
      
   Last Updated: May 16 2013   
   Article by Roy Berg    
   Moodys Tax Advisors   
      
   The current immigration bill pending before the US Congress contains   
   provisions that will make it easier for Canadians and retirees to obtain   
   non-immigrant status in the US. If the bill becomes law, these people will be   
   able to obtain a "Snowbird Visa,"    
   which will entitle the visa holder to be physically present in the US for a   
   period of 240 days. The Canadian press has been agog with articles and   
   commentary on the virtues of the proposed law, but few have addressed the   
   explosive US tax consequences    
   that might befall those who would obtain one of these visas. We refer to this   
   as the "Snowbird Visa TAX BOMB."   
      
   Here's why the Snowbird Visa TAX BOMB is a trap for the uninformed: while the   
   proposed legislation would allow the individual to remain in the US for a   
   period of 240 days, the lawdoes not exempt these days for tax purposes. In   
   other words, the "day count"   
    for purposes of the Snowbird Visa is different than the "day count" for tax   
   purposes. As a result the would-be holders of the Snowbird Visa can become   
   subject to US income tax and US estate tax and, therefore, inadvertently light   
   the fuse on the    
   Snowbird Visa TAX BOMB.   
      
   Day Count for US Income Tax   
   The US taxes three classes of individuals on their worldwide income: US   
   citizens, US green card holders, and "US Residents." Individuals are   
   "resident" in the US based on two relatively straightforward tests.   
   The first test is the easiest to understand and administer: if an individual   
   is physically present in the US for more than 182 days in the calendar year   
   that person is a resident and therefore subject to US income tax and foreign   
   reporting obligations on    
   worldwide income. It is worth noting that such individual, as a Canadian   
   resident, would also be obligated to file Canadian tax returns and report   
   worldwide income.   
      
   For those who are present in the US for more than 182 days in the calendar   
   year the Canada-US Treaty does afford a tiny bit of relief. If the individual   
   can establish that their center of vital interests is in Canada the Treaty   
   will override the 182 day    
   rule and deem him resident of Canada and therefore not subject to tax on   
   worldwide income. However, such individual must still file a US tax return to   
   claim the relief afforded under the Treaty.   
      
   However, this is only a pyrrhic victory for the taxpayer because the Treaty   
   relieves the individual only from US tax on worldwide income. The Treaty does   
   not relieve the individual from either the obligation to file all requisite US   
   forms (including the    
   dreaded FBAR) or the obligation to pay potentially ruinous penalties for the   
   failure to file these forms.   
      
   The second test is called the "Substantial Presence Test." It is somewhat more   
   involved and requires applying a mathematical formula to the days present in   
   the US. The formula works like this:   
      
   Start with the number of days present in the US during the current year and,   
   if greater than 30, add 100% of these days and continue to step 2;   
   Add 1/3 of the number of days present in the US during the prior year;   
   Add 1/6 of the number of days present in the US two years prior.   
      
   If the individual spends more than 30 days in the US in the current year, and   
   the sum of those three figures is greater than 182 then the individual is   
   resident in the US for US income tax purposes and therefore subject to tax on   
   worldwide income. If the    
   sum is less than 182 or less, then the individual is not resident for US   
   income tax purposes.   
      
   However, this second test ("Substantial Presence Test") has an important   
   exception. If the individual has a closer connection to Canada and files the   
   US form 8840 with the IRS on or before April 15 (June 15 if he is outside of   
   the US on that date) then    
   he will be deemed to be not resident in the US and therefore exempt from US   
   tax on worldwide incomeand all US filing obligations.   
      
   US Estate Tax   
   The US also imposes an estate tax on the value of certain individuals'   
   worldwide assets owned at death. The individuals subject to the estate tax on   
   worldwide assets are those who are either US citizens or "US Residents." If   
   the individual is neither a    
   US citizen nor a US resident, only the property that situated in the US will   
   be subject to the US estate tax.   
      
   Those who expect consistency and logic in tax law will be disappointed (though   
   probably not surprised) to learn that the test to determine residency for the   
   US estate tax is different than the test to determine residency for US income   
   tax purposes. For    
   estate tax purposes an individual is resident if he: a) lives in the US, even   
   for a brief time; and b) has no definite present (or later) intention to move.   
   The test applied by examining all of the surrounding facts and circumstances.   
      
   This fact and intent based test is challenging to apply because facts are   
   messy and change with time. Thus, an individual may not be resident for estate   
   tax purposes in one year but several years later that conclusion may change.   
      
   Conclusion   
   Tax considerations are a factor that should be considered in many of life's   
   major decisions. The weight to be given to tax, however, is dependent on many   
   factors and is seldom the only consideration. The would-be holders of the   
   Snowbird Visa need to    
   realize that both US and Canadian tax issues will arise if they spend a   
   significant amount of time in the US. Given the magnitude of the tax   
   consequences, individuals need to be wary and avoid accidently lighting the   
   fuse on the Snowbird Visa TAX BOMB.   
   The content of this article is intended to provide a general guide to the   
   subject matter. Specialist advice should be sought about your specific   
   circumstances.   
      
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