In recent weeks, there has been extensive news coverage on the Gang of Eight’s U.S. Immigration reform bill. If the new bill were to pass, U.S. Immigration (USCIS) would extend the amount of days a Canadian can spend in the U.S. from 180 to 240 per year. Many Canadian Snowbirds are delighted that their 6-month sunny winter may be extended to 8-months, pending the bill’s approval – and who could blame them? More sun, more beach, more golf and less snow! However, there may also be a costly tradeoff to this dream lifestyle in the form of double taxation and loss of health care coverage.
There are numerous government organizations where the number of days spent within a specific jurisdiction can have a significant impact when applying its rules. The Canada Revenue Agency (CRA), Internal Revenue Service (IRS), Provincial Health Care and USCIS are the key players when analyzing this topic. While it may seem logical that these departments work together to make life simple and enjoyable for us Canadians, nothing can be further from reality. This is why it is important to underscore that if these immigration changes were to come to pass the other departments may not follow suit. This begs the question of how the proposed changes may impact tax & health care?
The IRS says that if you spend more than 182 days per year you may be considered a U.S. tax resident and therefore subject to tax by the IRS on your worldwide income. This may not be a bad thing considering the U.S. income tax rates are significantly lower than those in Canada. Becoming a tax resident of the U.S. means you are becoming a non-resident of Canada for tax purposes. When a Canadian cuts ties with Canada from a tax perspective this may give rise to departure tax issues. Careful planning must be done in advance to analyze one’s assets with the objective of deferring, minimizing or eliminating departure tax issues.
While extending one’s stay in the U.S., Canadians would also not be allowed to work in the U.S. or obtain any U.S. benefits such as social security or Medicare. Additionally, most Canadian provinces will deem you ineligible for health care benefits if you are out of Canada for more than six months. This means that private insurance may become a threshold issue and a possible must-have for anyone considering more months in the sun.
Up until now, because the tax, immigration and health care thresholds with respect to days were approximately the same, most Canadians stayed within the limits for all three. However, with the possibility of Canadians enjoying additional freedoms granted by USCIS, they may now inadvertently find themselves being deemed a U.S. tax resident and ineligible for Canadian health care benefits.
It is possible that these immigration changes could have catastrophic consequences for Canadian Snowbirds. That being said, in time the CRA, IRS and Provincial Heath Care departments may adjust the number of days to align more closely with the limits set forth by the USCIS. Given that this is unlikely to occur anytime soon, it is important to note that these issues still need to be addressed. With proper planning by a cross-border specialist, a customized plan can be implemented such that you may spend more time in the sun and pay lower overall tax while having health care coverage.
If after reading this and having followed the news stories on the topic you want to spend even more time in the U.S. or possibly move to the U.S., our financial planning entity MCA Cross Border Advisors Inc. may be able to advise you with regards to the financial planning involved in such a move.
Altro LLP is closely following the approval process of the Gang of Eight’s U.S. Immigration Bill and will continue to post updates on our blog and newsletters.
The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel. It is not intended to be attorney advertising or solicitation. If you have a legal question, please consult with a licensed attorney.