What snowbirds should know about taxes

Even if you travel south of the border to escape the cold, you can’t escape taxes. Here’s what you should consider when tax time comes around.

What snowbirds should know about taxes

As a snowbird, you probably enjoy soaking up the sun in the United States, but you need to remember that you have obligations to pay taxes here in Canada.

  • While many Canadian residents make the trip to warmer temperatures to avoid the harsh Canadian winters, you are still taxed as if you had been in Canada the whole time.
  • There are also restrictions on how long you can spend away from Canada.

U.S. tax obligations

If you are escaping Canadian winters in the United States, you may be subject to U.S. income tax.

  • Make sure to pay attention to the amount of time you spend in the U.S. if you want to avoid paying taxes.
  • In order avoid paying taxes you are required to fill out two forms.

First form: 8840 - Closer Connection Exemption Statement for Aliens

  •  This form is to state that you are a visitor to the country and will not be filing a U.S. income tax return because you maintain "a closer connection" to a foreign country, such as Canada, where you will be paying annual income tax.
  • As a Canadian, you should make sure to complete and file a new 8840 form each year.
  • This is to state to the U.S. government that you are a “temporary visitor for pleasure” and are following U.S. tax laws. It’s a good idea to carry a copy of your filled out form when you return to the U.S. in the following year.

Second form: W8-BEN - Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding

  • This is for Canadians who have U.S.-based bank accounts that earn interest.
  • This interest is considered a taxable income when completing each year's Canadian income tax return with the Canada Revenue Agency (CRA).
  • The IRS form WB-BEN is a withholding tax exemption form your bank or credit union needs to keep on file for the IRS. It's valid for up to three years.

Canadian income tax

If you love your visits to the sunny United States, but will always call Canada home, then you are required to pay Canadian income tax because you are taxed as if you never left.

  • Report all income you receive from sources (inside and outside Canada) for the year
  • Claim federal and provincial or territorial tax credits that apply to you
  • Pay federal tax and provincial or territorial tax where you keep your residential ties
  • Take advantage of the goods and services tax/harmonized sales tax credit and provincial credits
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