U.S. Immigration Rules and Tax Considerations for Canadians: 7 Things to Know 

Every year, tens of thousands of Canadians move to the U.S. and close to a million snowbirds migrate south for the winter. While it’s easy for Canadians to get to the U.S., there are tax and immigration rules to be aware of if you want to stay for an extended period of time. To keep you informed and protected against unpleasant surprises, here are seven things you may want to consider should you plan to work, visit and stay in the U.S. as a Canadian.

Please note that the following information is for reference purposes only and not professional tax advice. For expert tax advice specific to your individual situation, contact a tax professional.

1. Understand U.S. immigration rules

U.S. Immigration rules state that if you’re a Canadian resident, you can’t spend more than 182 days in the U.S. per year (that’s a 365-day rolling year, not a calendar year). If you go over that amount, there are a number of consequences you might contend with: 

• Unlawful presence: You could be considered an illegal resident of the U.S. and be banned from the country for 3-10 years. 

• Estate tax exposure: The U.S. imposes estate tax on your worldwide assets if you’re considered a U.S. resident at the time of death. 

• Canadian departure tax: When you cease being a Canadian resident for tax purposes, the Canadian government can charge a departure tax (also known as a deemed disposition tax) on accrued gains on many of your assets.

• Healthcare coverage: Losing your Canadian residency by staying for too long in the U.S. would likely affect your Canadian health care and coverage.

2. Understand U.S. tax rules

Unfortunately, spending less than 182 days in a given year does not automatically clear you from being considered a U.S. resident and having to file a U.S. tax return to the IRS. 

Unlike U.S. immigration rules, the amount of time you can stay in the U.S. without a tax penalty isn’t based on a set number of days every year. Rather, you need to consider time spent in the U.S. over the last three years. This is where the substantial presence test comes in.

3. Know how the substantial presence test works

The substantial presence test is a formula you could use to help determine if you’re spending too many days in the U.S. for tax purposes. It’s based on how many days you have spent in the U.S. over a 3-year period, including the current calendar year and the previous two calendar years. 

The formula looks like this:

• Add all the years you spent in the U.S. in the current calendar year, and

• 1/3 of the days you spent in the U.S. last year, and

• 1/6 of the days you spent in the U.S. in the year prior to last year

If the total equals at least 183 days, you would meet the substantial presence test and be considered a U.S. resident for tax purposes in the current year (and may be subject to tax payments to the IRS).

4. There are calculators to help

Don’t want to do the math, or want to make sure you’ve calculated things correctly? This substantial presence test calculator is a handy tool that could help you determine your status in the U.S.

5. And if you meet the substantial presence test? Go to plan B

If your calculations put you over 182 days — but your connections are much closer to Canada than they are to the U.S. — you may be able to avoid paying taxes in the U.S.

With the closer connection exception, you may be eligible to spend up to 182 days in the U.S. per calendar year as long as you prove that you have closer ties with Canada. The U.S. government looks at a number of factors in determining if you qualify for this exception, such as where your home and family are located.

To qualify for this exception, you must file Form 8840 with the IRS every year before June 15^th.

6. And if you don’t qualify for the exception? All is not lost!

If you’re not eligible for the closer connection exception, you may still be able to apply for a tax exemption under the Canada-U.S. Tax Treaty. One of the main goals of the treaty is to prevent double taxation of Canadian taxpayers, so there are some tiebreaker rules set up to determine whether you should be paying tax in Canada or the U.S.

To claim the treaty exemption, it’s typically required to file a U.S. non-resident tax return (1040NR) and attach a treaty exemption statement (Form 8833), which indicates you are a resident of Canada under the treaty.

7. You can track your border crossings online

If you haven’t been keeping close track of how long you’ve been spending in the U.S. over the last few years, not to worry. Canada and the U.S. share information about when you enter and leave each country and the Canada Border Patrol provides online access to a report of your border crossings. To access the information, have your passport handy, and you’ll need to enter a few details from it.

Bottom line

You may want to consider spending fewer than 182 days per 365-day period in the U.S. to avoid being considered a U.S. resident for income tax purposes. Also, it’s best to keep track of your time spent in the U.S. over a three-year time frame to avoid penalties and extra tax payments.

If you’re close to the allowable number of days you can spend in the U.S., or have questions about past or future visits, it’s a good idea to speak with a tax expert and a legal professional, so you can avoid surprises and enjoy peace of mind throughout your cross-border travels.

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