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IRS tightens grip on snowbirds, ex-pats in Canada

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Read this column if you or someone you know was born in the United States, holds a green card (work permit), travels to the U.S. for an extended period in the winter, or has another close connection to America.

The American Internal Revenue Service (IRS) is more interested in you than ever.

We have written in the past about the need for U.S. citizens living in Canada to file their American non-resident tax return, and for Canadian snowbirds to file IRS Form 8840, establishing they have a closer connection to Canada and therefore do not need to file a U.S. return.

Today's column moves from the reminder and suggestion made in the past, toward an urgent appeal to begin complying with the IRS requirements rather than risk having them approach you first. The penalties and extra tax (when they deny your available credits and exemptions) can be horrendous.

Here are reasons why compliance has become more imperative than ever.

On March 18, U.S. President Barack Obama signed into law the HIRE Act, ostensibly aimed at job creation. However, one of the ways to pay for the $18-billion cost is to tighten the reporting requirements for "U.S. persons" with interests in foreign accounts.

You guessed it -- an American citizen living in Canada is a U.S. person. A Canadian citizen with a green card, or one who spends more than 183 days a year in the U.S., also becomes a U.S. person for tax purposes.

Shocking to me is the fact Canadian financial institutions are now going to be compelled to report all the personal information of any U.S. persons holding accounts with them. Starting in 2013, your bank or investment firm (if it intends to do business with any U.S. person) will have to ask every account holder if they have a connection to the U.S. and, if they do, report their information to the IRS.

If a person refuses to answer the question or refuses to provide information ("a recalcitrant account holder"), the bank will be required to withhold 30 per cent of any investment earnings on the accounts and hold that for the IRS.

There are many American citizens who have lived in Canada for many years. Some of them have filed their 1040 return each year with the IRS, while some still do not. Many who don't file ask questions like, "How will they find out?" or, "What business is it of theirs?"

The answer is another question: "Do you want to keep travelling to the U.S.?" If so, then you had best become compliant with the rules. Anyone who thinks personal information can be kept secret, when the U.S. Customs & Border Service and Homeland Security are looking at your passport every time you cross the border, and your financial institution will be reporting to the IRS, is kidding himself or herself.

Some people have taken comfort over the years from the apparent fact Customs & Border Service was not supposed to share information with the IRS. That balloon was pierced for me this week when talking to a colleague at the annual conference of the Society of Trust and Estate Practitioners (STEP) in Toronto. He told me a first-hand account of a client crossing the border, and the customs officer walking him over to an IRS agent at an adjacent desk, who asked why he had not been filing his required U.S. resident tax return.

The tomorrow we have feared for a long time has arrived. Talk to your tax preparer or financial planner about how to become compliant and go to my blog at for a full article on this.

Snowbirds, if you spent more than 30 days in the United States in 2009, then this applies to you. First, determine if you have a "substantial presence" in the U.S. by adding together:

-- Total number of days you spent in the U.S. in calendar year 2009;

-- 1/3 of the days spent in 2008; and,

-- 1/6 of the days spent in 2007.

If the total is greater than 182, then filing of Form 8840 is mandatory, separately for each spouse. If the total is 182 or less, then submitting the form is optional. The deadline each year is June 15. To obtain your form, go to: It then gets mailed to U.S. Department of the Treasury, Internal Revenue Service Center, Austin TX, 73301-0215, U.S.A. Make a photocopy of your forms, as well, and carry them with you when you head for the border.

The penalty for noncompliance can be the IRS forcing you to pay tax on your worldwide income, then you trying to get appropriate Canadian and U.S. tax credits so you are not taxed twice on that income.

For full information on Snowbird-filing requirements, go to my blog at

It looks like U.S. tax preparation is going to be a growth industry in Canada.

David Christianson is a fee-for-service financial planner and portfolio manager, at Wellington West Total Wealth Management Inc. providing comprehensive financial advice and management. You can email him at or visit his blog at

Republished from the Winnipeg Free Press print edition June 11, 2010 B5

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