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Snowbirds beware of tax and residency changes

Things are about to change dramatically for some snowbirds. U.S. and Canadian authorities will be making changes to the way they determine the residency of individuals that spend time in the U.S. and Canada. Not being aware of these changes could result in harsh tax consequences.

The changes that come into effect June 30, are part of the Entry-Exit Initiative and Perimeter Security and Competitiveness Plan. This plan requires authorities on both sides of the border to scan your passport on entry and exit, rather than only scanning passports coming into the country. The result will be a clamping down on Canadians not respecting the honour system rules. The U.S. and Canadian authorities will now know exactly how long a visitor has been in their country and will be sharing this information with one another. All provinces, except Ontario and Newfoundland, require you to actually live in your home province for at least six months plus a day (183 days in most years) in order to be considered a permanent resident of that province. So what are the implications if you do not stay long enough or spend too much time out of your home province:

1. Canadians who lose their “resident” status lose their entitlement to provincial health care. If an individual stays outside B.C. longer than six months they will be required to fulfill a wait period upon re-establishing residency.

2. A Canadian resident that loses resident status is deemed to have disposed of all their assets and must pay tax on that gain.

3. A snowbird who is in the U.S. too long also risks becoming a deemed U.S. resident and therefore subject to tax on worldwide income and they must file a U.S tax return.

4. A snowbird’s estate could become liable to U.S. estate tax, which taxes U.S. residents on the fair market value of their worldwide assets when they die.

Clearly if you plan to spend time outside your home province make sure that you count your days very carefully and do not exceed the limits.

Always consult your advisor before taking any action.

— Stuart Kirk, CIM, is a wealth advisor with Precision Wealth Management. The opinions expressed are those of the author and may not reflect those of Precision Wealth Management. He can be reached at stuart@precisionwealth.ca or 250-954-0247.

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