USA Canada Border Crossings Will Be Scanned

In my tax practice I deal with many Canadians who are consistently travelling back and forth between Canada and the USA, staying in USA for extended period of time. This creates a big problem, due to the fact for a longer time of stay in USA, you could become a USA tax residence even you are a Canadian citizen. In this case you have to file income tax return both to the USA and Canada. 

Clients never seem to figure out, how long they have stayed in USA, since the border authority does not stamp their Canadian Passport. There are specific schedule in the USA tax form to provide your travel information to the IRS, to determine, if you are a primary USA tax residence.

Looks like, things will start to change starting July 1, 2014. Under a new agreement, Canada and U.S. border authorities will now scan your passport when you enter and exit their country to determine how long a person has actually been out of their own country of residence in a given year.

Once U.S. and Canada have access to a travel day count for its citizens, both countries can track a person’s physical presence and use it to apply various immigration and tax laws.For U.S.A tax purposes, you can be deemed a resident if you are present in the U.S. for 183 days in the current calendar year or 183 days over a 3 year period. This is done by counting 100% of the days in the current year, plus 1/3 of the days in the first preceding year and 1/6 of the days in the second preceding year. Unless you can claim a closer ties with Canada you will be considered a deemed Tax Residence of USA if you meet the physical count test.

Unfavorable tax consequences will result if you are no longer considered a Canadian resident.

Regular travelers and snowbirds should also be aware of the U.S. immigration rules which are different than U.S. tax rules regarding residency. The 183 day tax rules cover a calendar year, whereas the immigration rules state that a non-resident cannot legally spend more than 182 days in the U.S. over a rolling 12 month period (not a calendar year).

For example, if you, as a snowbird, chose to spend October to March in the U.S., come back to Canada for the spring and summer but then return to the U.S. prior to the following October, you will be in the U.S. illegally. Even if you returned to Canada for a few days between October and March, the immigration clock does not turn off unless you spend enough time in Canada (minimum two week period); U.S. immigration still considers you to be present in the U.S. and merely ‘visiting’ Canada. You can be barred from travelling to the U.S. for a number of years if caught in the country illegally.

You would also be caught under the substantial presence test and therefore deemed a U.S. resident for tax purposes unless you can claim closer ties to Canada.