Snowbirds face June 15 ‘Closer Connection’ deadline

Hey there, time traveller!
This article was published 06/06/2022 (288 days ago), so information in it may no longer be current.

With travel and winter sojourns having resumed, Snowbirds need to remember there are tax reporting requirements to which they may need to comply.

Specifically, many Snowbirds need to file Form 8840 — the “Closer Connection Exception Statement for Aliens” with the U.S. Internal Revenue Service by June 15 each year.

Any Canadian who has a “substantial presence” in the U.S. — as calculated using a weighted average of the days spent in the U.S. over the last three years — must file this form to prove a closer connection to Canada than to the U.S.

If you prove you have a closer connection to Canada, then the IRS exempts you from the requirement to file a U.S. tax return as well as Canadian.

We expect that fewer Canadians will be required to file this form, due to vastly decreased travel in 2020 and 2021, but anyone who has spent more than a few months in the U.S. in two of the last three years should pay heed.

Here are the details.

Step one:

For 2021 (to comply with the June 15, 2022, filing deadline), a Canadian has a “substantial presence” in the U.S. by spending 31 days or more in the U.S. in 2021 and a total of 183 days during 2021, 2020 and 2019, counting all of the days of physical presence in 2021, one-third of the days of presence in 2020 and one-sixth the number of days in 2019.

If you spent more than 121 days each year, then this absolutely applies to you, without even doing the calculation. But for a person spending exactly 121 days in the U.S. each year, here’s the math:

• 2021 = 121 days (count all)

• 2020 = 40 days (one-third of 121)

• 2019 = 20 days (one-sixth of 121)

This total is 121 + 40 + 20 = 181, which is just less than the 183-day limit. Therefore, you do not have a “substantial presence.”

However, if we use an example of 123 days in 2021, that would have made the total 183, and therefore a “substantial presence” and a Form 8840 filing requirement.

You count your travel days if they include any presence in the U.S., but not days you were unable to leave the U.S. due to a medical problem that developed while you were in the U.S.

Step two:

If you do have a “substantial presence” in the U.S., you can still avoid having to file an actual U.S. tax return by filing the much shorter and easier Form 8840, to show that you have a “closer connection” to Canada than to the U.S.

This form asks about your passport, family members, car registration, social, religious and political organizations, voting, business connections and your own opinion.

If this shows that you have a closer connection to Canada, then your “tax home” is Canada, and you’re done. If it shows a closer connection to the US, then you may be required to file a U.S. 1040NR tax return.

Form 8840 can be located on the IRS website at www.irs.gov/pub/irs-pdf/f8840.pdf. Once completed, the form is mailed to the Department of the Treasury, IRS Centre, Austin, TX, 73301-0215.

There is also an annual six-month limit to the stay of a foreign person in the U.S., under the terms of the B-2 Visa that is the actual set of rules under which Snowbirds visit the U.S.

It is best to stay onside with all these requirements.

By the way, if you are heading to an airport this summer, arrive early. Lineups and delays are epic!

Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.

David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Senior Wealth Advisor and Portfolio Manager with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.