Many Canadian snowbirds who decided to go away this winter are considering extending their stay outside Canada in an attempt to avoid the new mandatory hotel quarantine rules and other testing requirements that came into effect on February 22nd.
Their hope is that these requirements may be lifted or loosened by the spring – although there is no indication at this point when this might happen, and it is possible they will be extended well beyond the spring.
However, while extending your stay in the hopes of waiting it out may be appealing, there are a number of potentially serious issues and risks associated with staying in your host country or outside Canada for too long. Many of these issues and risks can be mitigated or resolved, but require foresight and planning.
Here are some of the main issues snowbirds should consider if they plan on staying away longer than originally anticipated.
Considerations for Canadian Snowbirds in the U.S.
Canadian snowbirds who spend their winters in the U.S. need to mindful of how much time they spend there, as staying too long can result in serious tax and immigration issues.
It’s also important for snowbirds to be aware that the U.S. has two separate sets of rules they must comply with when it comes to how long they can spend in the U.S. to avoid running into trouble - one for tax purposes and one for immigration purposes.
We reached out to Cross Border legal expert, Shlomi Levy of Levy Salis, a Canadian cross-border law firm specializing in tax, estate planning, real estate and immigration to provide insights into some of the U.S. tax and immigration rules Canadian snowbirds need to consider.
Canadians who spend too much time in the U.S. may be deemed U.S. residents for tax purposes, which would require you to pay taxes in the U.S. - even if you are not a U.S. citizen.
The Substantial Presence Test (“SPT”) is the first place Canadians who spend a significant amount of time in the U.S. will want to turn. The SPT is a weighted formula that calculates the number of days you have spent in the U.S. over a 3-year period, including the current calendar year and the previous two calendar years.
When performing the SPT calculation, include:
- all of the days you spent in the U.S. in the current calendar year
- 1/3 of the days you spent in the U.S. in the prior year, and
- 1/6 of the days you spent in the U.S. the year before that
If the total is 182 days or less, you will not be considered a U.S. resident for tax purposes.
As a rule of thumb, under the SPT, Canadians can spend 120 days or less in the U.S. in each calendar year without being considered a U.S. resident for tax purposes.
You can use Snowbird Advisor’s Substantial Presence Test Calculator to check your status.
Canadians who want to spend more time in the U.S. can turn to the Closer Connection Exemption, (“CCE”) which allows you to spend up to 182 days every calendar in the U.S. without being deemed a U.S. resident for tax purposes. However, to qualify for the CCE, you’ll need to meet certain eligibility criteria, prove you have a closer connection to Canada than the U.S. and file a Form 8840 with the IRS annually.
If you spend 183 days or more in the U.S. in any calendar year, you may have one last shot at avoiding being considered a U.S. resident for tax purposes under the Canada – U.S. Tax Treaty, but there’s no guarantee you will qualify and the process can be complex and costly.
According to Levy “If a Canadian resident is present in the United States in a year for 183 days or more, then they will absolutely be required to file a US tax return. However, they can potentially take a position based on the Canada-US Tax Treaty that they are solely a Canadian resident for tax purposes, and file a non-resident US tax return whereby he is solely taxed on US source income. This requires applying a series of tie-breaker tests under the Treaty (IRS Form 8833) based on the location of family, social ties and assets. A highly qualified cross border tax practitioner should be should consulted to prepare these filings.”
You can find additional details about the Substantial Presence Test, Closer Connection Exemption and Canada – U.S. Tax Treaty here.
Is the IRS providing Canadians with any relief from tax rules due to COVID-19?
According to Levy “In April 2020, the IRS announced a COVID-19 relief measure for non-residents stranded in the United States to exclude up to 60 consecutive days from the calculation of the SPT under certain conditions. This exclusion is limited to presence between February 1, 2020, and April 1, 2020.” (covered by Snowbird Advisor here)
“Under the SPT, a Canadian is treated as a US tax resident for 2020 if he was physically present in the United States for 183 days in 2020 or if he was deemed to have been present for 183 days in the United States based on the number of days spent in 2020 and the two (2) previous years. The implications of US tax residency are considerable: the obligation to disclose worldwide income and assets to the Internal Revenue Service (IRS) and payment of US tax on worldwide income. In certain instances, a Canadian who triggers the SPT can file the CCE form (Form 8840) to be exempt from US tax, but this option is not available if he has been present in the United States for 183 days or more in a calendar year.”
“For example, the 60-day exclusion allows a Canadian resident who was present in the United States between February 1, 2020, and August 1, 2020, to exclude the period of February 1, 2020, to April 1, 2020, from the SPT calculation such that he is deemed to have been present in the United States for less than 183 days in 2020, and can therefore file the CCE form (Form 8840) to be exempt from US tax. We note that where this form must be filed, the filing deadline is June 15, 2021.”
“Unfortunately, at this time the IRS has not announced any additional US tax relief measures for non-residents such as snowbirds, but we are closely monitoring announcements of all US tax relief measures.“
From an immigration standpoint, Canadians can generally spend up to 6 months at a time in the United States.
Canadians should be aware that U.S. Customs and Border Protection (“CBP”) officers have a great deal of discretion when it comes to non-U.S. citizens entering the United States. For example, CBP officers may choose to allow you entry for a period of less than 6 months or deny entry altogether depending on factors like how frequently you travel to the U.S., how much cumulative time you spend there and what they believe your intentions are when entering the U.S. (i.e. are you simply there as a temporary visitor or do you have a deeper connection?)
Canadians who stay in the U.S. for longer than 6 months at a time run the risk of being banned from entering the U.S. in the future, sometimes for a period of several years or longer.
In some circumstances, Canadian snowbirds and other travellers may apply to extend their stay beyond 6 months by filing a Form I-539 extension application with U.S. Citizenship and Immigration Services (“USCIS”).
However, there are a few things to keep in mind if you are thinking about applying for an extension:
- If you are granted an extension, it will only be for immigration purposes and NOT for tax purposes.
- Your extension application must be submitted well in advance of the date you would otherwise be required to leave the United States. USCIS recommends submitting your application at least 45 days in advance.
- You will need to meet certain criteria to qualify for an extension.
- There is a fee of several hundred dollars to apply for an extension.
- There is no guarantee that your extension request will be approved, as extensions are granted on a discretionary basis.
Considerations for Snowbirds in the U.S. and Elsewhere
Provincial Health Insurance Coverage
When it comes to provincial health insurance coverage, Mr. Levy has the following to say:
“Canadians should be aware that their continuous eligibility for provincial health insurance programs such as OHIP and RAMQ is based on residing in Canada for a minimum period of time each year (153 days for Ontario and 183 days for Quebec for example).”
“If a snowbird stays outside of Canada for too long, they will cease to qualify for their provincial health insurance program.”
Most provinces allow you to apply for an extension of your provincial health care coverage if you will be outside Canada for more time than your province allows, however, the extension rules and application process vary from province to province.
If you are thinking of extending your stay outside Canada to the point where you won’t meet your province’s minimum residency requirements to maintain your provincial health care coverage, contact your province’s health plan to inquire about applying for an extension as soon as possible.
Travel Insurance Issues
If you plan on extending your stay, you will want to make sure you get an extension or top-up for your travel medical insurance policy to cover you for the extra time you will be away.
However, be aware of the following potential issues and considerations:
- Insurance providers require you to purchase your extension/top-up prior to the date your original policy expires.
- If you have made a claim under your existing policy, you may not be eligible for an extension/top-up.
- Travel insurance providers require that you have continuous, uninterrupted coverage under your provincial health insurance plan for the full term of your policy - including extensions and top-ups.
Accordingly, if you are applying for an extension to your provincial health insurance plan (as per the previous section) make sure you get the extension from your province before your travel medical insurance policy expires. Otherwise, it could invalidate your travel insurance policy and make you ineligible for an extension or top-up.
Your insurance provider may require proof that your provincial coverage before considering whether to cover you for the extended period.
- Some insurance providers may not offer extensions or top-ups depending on your travel destination or the COVID situation in your destination.
Contact your travel insurance provider as soon as possible to find out what their current rules and options are with respect to extensions and top-ups.
Canadian Tax Issues
If you are outside Canada for too long, you may be considered a non-resident for tax purposes, which could lead to adverse tax consequences in Canada.
Mr. Levy had this to say on the topic: “Prolonged absence by a Canadian from Canada does not by itself trigger non-resident status for tax purposes. As long as a Canadian retains ties to Canada and does not terminate them either under the Income Tax Act or a tax treaty such as the one between Canada and the United States, they will remain a factual tax resident of Canada.
“This status requires that they continue to disclose their worldwide income and assets to the Canada Revenue Agency (CRA) and pay Canadian tax on their worldwide income.”
International Visa/Immigration Issues
If you’re spending the winter in a country other than the U.S. and thinking of extending your stay, be aware that these countries have limits on how long you can stay, and overstaying your welcome or visa can have a variety of consequences, including not being able to return.
Information on how long Canadians can stay in some popular non-U.S. snowbird destinations can be found here.
Availability of flights
Depending on where you are located this winter, you may find it much harder to find flights to get back to Canada. The pandemic has affected airline schedules, flight availability and frequency.
Canadian airlines have stopped flying to Mexico and the Caribbean altogether until April 30, 2021, and there is no guarantee that they will resume on or after that date.
It is recommended you ask an experienced travel agent to assist you in finding the best way home from your destination, as they have access to all of the current options.
Another concern with returning home later than planned is that snowbirds could run out of their prescription medicines. Most people take their supply for the winter months with them from Canada.
Of course, you can go to a local medical clinic or doctor at your winter location and get a prescription. However, you will have to cover the cost of the doctor’s visit and the medication out of pocket and some types of medication may not be readily available, depending on where you are in the world.