Ottawa’s warning for Canadians to expect extra scrutiny when travelling to the United States extends to snowbirds who spend part of the year south of the border, according to a Calgary-based tax expert who specializes in cross-border tax issues.
“With the Trump administration appearing to be upsetting the status quo on many things, it’s only logical that Canadian snowbirds might be concerned about whether or not the methods that they enter the U.S. will be changing or subject to more scrutiny,” says Kim Moody, CEO of Moodys Tax.
U.S. customs agents have the authority to search phones and electronic devices at border crossings but a 2014 information sharing agreement between the Canada Revenue Agency (CRA) and the U.S. Internal Revenue Services (IRS) could have already exposed more sensitive personal information to a government becoming increasingly hostile to foreigners.
Immigration advocates previously sued the Trump administration over a new registration requirement for non-U.S. citizens staying longer than 29 days. On Thursday, a U.S. federal judge allowed the requirement to go forward.
“Combine those concerns with the fact that the CRA has been sharing information gathered about U.S. persons who reside in Canada pursuant to an information exchange agreement signed last decade, such concerns get real for Canadian snowbirds who might have U.S. tax and filing obligations that are not up to date,” he says.
The tax treaty attempts to determine which side of the border Canadians fall on for tax purposes through a complicated “substantial presence” formula, but Moody suspects many Canadians are unaware that the IRS has access to their personal information including the location of their permanent home, family members, driver’s license and business activities.
Personal information available to U.S. tax authorities also includes where they vote as well as social, political, cultural or religious affiliations.
In 2016, Canada’s Privacy Commissioner – which provides advice for individuals about protecting personal information under the Federal Privacy Act – expressed concern. The privacy watchdog recommended that the CRA notify impacted individuals when and why their data is provided to the IRS.
Under the Privacy Act, general consent is required for the disclosure of personal information but also includes exemptions that allow for disclosures of personal information without consent.
The Privacy Commissioner says Canadians can contact the CRA directly to find out what information has been shared with U.S. authorities.
‘Substantial presence’ formula
Under the current agreement, snowbirds who spend more than 182 days in the U.S. based on a three-year rolling average can be taxed as U.S. citizens.
Those who fall under the IRS 183-day count and are deemed not “substantially present” would not be obliged to pay U.S. tax, but they must file a “Closer Connection Exemption Statement” (form 8840) with the IRS to establish they are more closely connected to Canada.
Since the tax-pact was penned, a growing number of Canadians – and even their advisors – have been blindsided by unexpected tax bills, penalties, or worse from the IRS.
“If you spend too much time in the states without proper immigration status, you’re considered to be an illegal alien. If you’re caught, you could be permanently banned from the United States,” says Moody.
Snowbirds who aren’t sure where they land on the tax divide should consider speaking with a qualified tax professional.
Crackdown on rental income
Experts say the information sharing agreement was likely prompted by an influx of Canadians buying U.S. rental properties in the wake of the 2008 real estate crash when high oil prices pushed the buying power of the Canadian dollar to over US$1.10.
According to a 2023 snowbirdadvisor.ca report, 85 per cent of the more than one-million Canadians who spend their winters abroad settle in the United States.
The report also found that approximately one half of Canadian snowbirds in the U.S. own real estate.
