Snowbirds must watch travel rules, financial adviser says

Moncton financial adviser Dan Noel says snowbirds need to pay attention to changes to how both the Canadian and United States governments are tracking their travel between countries.

"You used to swipe your passport only one way, but now it's both ways," Noel said.

It is part of a new information-sharing agreement between Canada and the United States.

Noel says many people have been lax in the past about how many days they spend south of the border, but warns that the rules are more strict now and Canadians must follow them.

"Both the Canadianand U.S.governments know how much time you've been away so that 183 day rule is very important," Noel said.

A common misconception is that Canadians who travel to the U.S. regularly for long stays can spend up to 182 days, or six months, in the United Stateswithout being considered a resident for tax purposes.

However for those who travel to the U.S. year after year it's actually 120 days, or four months, averaged using a special formula over a period of three years.

Tax implications

Noel says Canadians who stay too long in the United States face the risk of being deemed a U.S. resident which means you may have to pay tax in the U.S. on your worldwide income while you are alive, and tax on your worldwide assets when you die.

There are also implications in Canada, including loss of health care.

"Because you're no longer here," Noel said,"You're no longer deemed a resident so all of those things can be avoided by watching that 183 day rule."

Noel explains Canadians can extend their stay limit to 182 days and avoid being considered a U.S. resident by filing out a form that is known as the Closer Connection Exception Statement for Aliens or form 8840 and filing that with the Internal RevenueService.

The form asks questions such as where your permanent home, family and bank are located.

"You're saying, 'Ihave a closer connection to Canada than the U.S.,' and it has to be filled out with the I.R.S. on an annual basis."

Noel suggests snowbirds also keepa detailed log to avoid staying in the U.S. too long and facing penalties which include being banned from the U.S. for between three and 10 years.

"I know some snowbirds that count it to the day, they know the rules, they know that they have to this new form 8840 for the I.R.S.and so they keep themselves out of that tax trouble."