If you are a Canadian retiree who spends significant portions of the year vacationing south of the border, you need to be careful not to expose yourself to the risk of losing access to certain government benefits or facing adverse tax consequences if you stay out of the country for too long.

In July 2014, Canada and the U.S. began collecting a broader range of information on individuals crossing the border as part of a new travel information-sharing initiative. In addition, the Canadian government has indicated that it will share information regarding how long a citizen has been outside the country with other government departments.

Risk of Losing Government Benefits

While the rules vary from province to province, generally, Canadians must physically reside in their home province for four or more consecutive months in each calendar year to remain eligible for Canadian health benefits. Extended overseas trips, particularly for work, charitable work, or study may qualify for exceptions.

In Ontario, you risk losing your OHIP benefits if you spend over 212 days in each 12 month period outside of Canada. In certain cases, you may be eligible for a two year stay outside of Canada for vacation/other reasons. If you leave the country for extended periods of time during the year, you should check with your provincial health care provider before you leave and find out whether you can remain eligible for provincial health care benefits.

The good news is that in general, Canadians can still receive Canada Pension Plan or Quebec Pension Plan benefits even if they are no longer a tax resident of Canada. You can also continue to receive old-age security benefits as long as you meet certain residency conditions, including having lived in Canada for at least 20 years after the age of 18.

However, guaranteed income supplement and spouse’s allowance benefits for low income seniors, would only be available for six months after the month of departure.

Canada Revenue Agency has been enforcing rules more rigorously as of late and making sure that only those who qualify as residents of Canada are collecting benefits intended for Canadian residents. Therefore, you need to ensure that your absences from Canada will not end up disqualifying you for receiving government benefits.

Risk of Running Afoul of Tax Rules

Lengthy stays outside of Canada create complications with regards to income taxes too. If you remain abroad too long and cut residential ties to Canada, you may no longer be considered a resident for tax purposes in Canada, and instead, be considered a tax resident of a foreign country. One of the unintended tax consequences could be that you may become subject to departure taxes in Canada on the deemed disposition of your assets.

The U.S. government has lately increased scrutiny over Canadians spending extended periods of time in the U.S. too, so you should be careful to ensure that your extended stays south of the border will not necessitate that you file a U.S. tax return.

There are special rules for tracking the days you spend in the U.S. as a snowbird and you should be aware of these rules as they will determine whether you are considered a U.S. resident for tax purposes. Non-residents can stay up to 182 days in the U.S. each year. If you are forced to spend time in a U.S. hospital or are detained, those days are not counted towards your total.

Substantial presence, is another measure of tax status and is calculated by taking into account the time a visitor spends in the U.S. over a three-year period. While many snowbirds would fail this test, filing form 8840 with the U.S. Internal Revenue Service (IRS) will prove that you have a closer connection with Canada and should therefore be exempt from paying U.S. taxes. If you are not sure how many days you spent in the U.S. over the past three years, you can check online by registering for an I-94 Customs and Border Protection (CBP) number (search “Get I-94” on Google), and then you would be able to check your tally whenever you wish. This of course, would mean that the CBP would have the exact number of days you have spent in the U.S. too, which is why you should try not to over stay.


Risks Inherent in Selling U.S. Property

You should be aware of the tax implications of selling property in the U.S. If Canadians sell or rent out U.S. properties, they have to file form 1040 NR with the IRS and report capital gains or losses on U.S. property owned by non-residents.

You have to report capital gains on a sale of U.S. property in both countries, but the CRA will provide a foreign tax credit for the Canadian tax return to offset the U.S. taxes paid.

The currency exchange rate could complicate the reporting further. Sometimes, even if a property is sold at a loss in the U.S., you may have to report a capital gain in Canada after adjusting for the currency exchange rate.

Another factor to keep in mind is that if a Canadian sells a U.S. property for proceeds exceeding $300,000, 10% of the sale price could be withheld and submitted to the IRS (for next year’s taxes) before the deal closes. If you are sure that there has been no gain on the property, you can file IRS form 8288-B to be exempt from this payment. You have to be proactive and file this form. Otherwise the escrow agent will withhold the 10% of the sale price.

Risk of Increased Estate Taxes

If you own a vacation property in the U.S. you need to do special estate planning to protect this property from taxes when you die.

In some states, you can set up beneficiary deeds for your property for $200 – $400. By using these deeds you can assign a beneficiary so the property can pass upon your death without probate. However, not all states allow these and Florida, one of the most popular states for Canadian snowbirds, is one of those.

You need to consult a lawyer familiar with U.S. and Canadian estate law and coordinate your estate planning for assets held in the U.S. with your Canadian will and estate planning.


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