April
1994
Pages
35-43
the CEN-TA PEDE
david ingram's US/Canadian
Newsletter
CABINS
ACROSS THE BORDER and
"SNOWBIRDS"
I recently received a copy of
a newsletter from a Canadian enclave in the State of Washington. The
newsletter dealt with the possible requirement to file a US tax
return by Canadians who have recreational property in the US. In
this particular case, there are some 2,000 Canadian members of this
one enclave and there are another 30 to 40,000 estimated Canadian
owned recreational properties in the US within a three hour drive of
Vancouver.
The newsletter was very
accurate in explaining the "rules" but bothered me because it dealt
mainly with fear of filing rather than with the logical
solutions.
Let
me explain
There is nothing new about the
requirement of a Canadian Snowbird to file a US tax return if they
are in the US too many days.
Many of you will remember when
Howard Hughes came to live at the BAYSHORE INN. For six months we
were titillated with Howard Hughes stories and the speculative
question among tax consultants was: "Would he stay more than 183
days?"
The answer was "NO". He left
Vancouver (and Canada) on the 181st or 182nd day because if he had
stayed just one more day, he would have become taxable in Canada on
his WORLD INCOME.
The United States had and has
the same 183 day rule as does Great Britain, Australia, New Zealand,
etc. The difference is found in how the United States has calculated
the 183 days since 1984. That's right, these supposedly new rules
are now just about 10 years old. What has changed is the stepped up
enforcement of ten year old existing tax
laws.
If you are in the US more than
183 days this year, you are taxable on your world income. But it can
also sneak up on you in the following
way.
The United States calculates
the 183 days for THIS year by counting some of the days for the
preceding two years if you have been in the US for more than 30 days
in the current year.
So, if you have been in the US
for 126 days a year for this year and the last two years, the
calculation is:
1993 126
days
1992 (1/3 of 126 days) 42
days
1991 (1/6 of 126 days) 21
days
For a total of 189
days
and you are taxable on your
world income unless you can prove you have a closer connection to
another country.
You might want to and even be
able to prove you have a closer connection to Canada by filing a
form 8840 but "why bother" when filling out the tax return itself is
easier and leaves you free to "live your
life".
On the other hand, filling out
the 8840 just leaves a list of people for the IRS to look at and
will leave you paranoid. Filling out the tax form is usually
relatively painless (if you deal with my office, that is), and
leaves you free to join a golf club and be in (and out of) the US
for 189, 210 or maybe even 300 (under these extended rules) days as
long as you have a full blown home waiting for you in Canada or any
other country.
US "IMMIGRATION" laws say that
a Canadian can be a visitor for up to six months. That literally
means that you can go across the border to your cabin, chalet,
trailer pad, ranchette, condo or sailboat in Elliott Bay, stay there
for 180 days, come back to your home in Canada for a day or a week
or two, and go back for another 180
days.
US "INCOME TAX" law says that
if you do that, you have to file an American Tax Return. So what!
150,000,000 other people file a US tax return every year and they
have to "PAY" tax to the US. If you have already paid full tax to
Canada and if all your income comes from Canada, the US rules allow
a foreign tax credit for the tax paid to Canada. There is usually
zero tax for the Canadian to pay to the
US.
At "up to $40,000 US" for a
couple, there is usually no tax payable to the US. After $40,000 per
couple, an Alternative Minimum Tax can creep in. But do not worry.
At $80,000 US, it will not be over $600.00. And, if you do not mind
me saying so, if you are in the US for half the year, and you made
over $80,000 US (about $105,000 Canadian), you can afford to pay
$600.00 to the US.
If you do not want to pay the
Alternative Minimum Tax of $600, there is another simple solution
which you should have done anyway. Make sure you have some
investment income from the US. Say about $6,000 to $10,000. This
will generate a tax liability to the US First (don't worry, Canada
will give you credit for every cent paid to the US and reduce your
Canadian tax accordingly). Alternative Minimum Tax usually only
kicks in when you aren't paying the US any
tax.
What are the advantages of the
david ingram method of dealing with these
regulations?
A. You are free to come and go
without worrying about the "tax
man".
B. By having some of your
wealth in the US, you are hedging your retirement
dollar.
C. You can join the library,
golf club, ski club, buy all the furniture you want, buy a golf
cart, and just plain enjoy your
surroundings.
D. You will be forced to deal
with your medical insurance. At the moment, all sorts of SNOWBIRDS
believe they have coverage under the Canadian Medical Services plans
while they are spending most of their time in the US. LET ME WARN
YOU HERE. POSSESSION of a BC MEDICAL CARD does NOT mean you are
covered. BC MEDICAL routinely cancels medical insurance
RETROACTIVELY when their investigators find a person sleeping in the
United States more than 183 days a year. BC Medical, OHIP, New
Brunswick and every other provincial medical plan all insist that
you "SLEEP" in that PROVINCE more than 183 nights to qualify for
their medical plans.
E. You will not have to come
up with detailed answers for the 8840 which has questions
like:
19. Where were your personal
belongings, furniture, etc. located?
20. List social, cultural,
religious, and political organizations you currently participate in
and the location of each:
a __________________________
Location
___________________________________
b __________________________
Location
___________________________________
c __________________________
Location
___________________________________
d __________________________
Location
___________________________________
e __________________________
Location
___________________________________
>>>>>>>>>(10
other questions>
31 List any charitable
organizations to which you made contributions and their
location.
a __________________________
Location
___________________________________
b __________________________
Location
___________________________________
c __________________________
Location
___________________________________
d __________________________
Location
___________________________________
F. By filing as a "resident
for tax purposes" of the United States, you should escape
inheritance tax on amounts of over $60,000. (changing with new
treaty)
WHAT
ARE THE DISADVANTAGES?
A. You have to file an extra
tax return. But so do residents of Quebec and you are getting
cheaper gas, eggs, milk and
turkeys.
B. No others that I can think
of.
The following is a copy of a
"SNOWBIRD" article I wrote back in 1992 and which seems appropriate
about here.
SNOWBIRDS
The US government is starting
to enforce long standing rules against Canadian SNOWBIRDS, and, to
be sure, anyone else who spends a lot of time in the US. It can more
easily apply to someone who has a cabin in the San Juan Islands or a
summer (winter) cabin at Birch Bay, Point Roberts or Mount Baker as
it can someone with the place in Palm Springs or
Arizona.
In particular, if you rent
that cabin out during the year, you MUST file a tax return as well.
Failure to report even $600 rent can result in an automatic tax of
30% of the gross with no expenses allowed AND penalties plus a fine
of (are you ready for this?), up to $10,000 for failing to file the
tax return "EVEN THOUGH YOU LOST MONEY IN THE RENTAL
PROCESS".
But back to SNOWBIRDS (or
summer visitors who go back and forth a lot to shop,
etc.).
a TEN MINUTE TRIP ACROSS THE
BORDER COUNTS AS ONE DAY. GOING TO BIRCH BAY ON FRIDAY NIGHT AND
COMING BACK TO VANCOUVER ON MONDAY MORNING COUNTS AS FOUR DAYS. AND,
The US counts the number of days one is in the Country in the
following manner.
Take the days present this
year - let's say 130 days
add 1/3 of the days in the
previous year
and if that was 120 we get
another 40 days
plus 1/6 of the days present
two years previous
and if that was another 120 we
get 20 days
for a total of: 190
days
and we are now taxable in the
US on our "WORLD" income. i.e., the person must report his or her
Canadian Pensions, interest, dividends, rents, farming and capital
gains income to the US as well as
Canada.
The person is taxable in other
words, even if no income is coming from the US simply because of
physical presence. Canadians will remember back in 1977 when Howard
Hughes was ensconced in the Bayshore INN. He left town on his 182nd
day because Canada would have taxed Howard on his world income if he
had stayed 2 more days.
It is possible to avoid this
by filing a "DECLARATION OF CLOSER CONNECTION TO CANADA" with the
IRS Service Centre, Philadelphia, PA, 19255. This Declaration would
state that your family, belongings, permanent residence, social and
business ties are all in Canada.
The problem is that with time,
these ties "move south". The SNOWBIRD has bought a nicer place in
Arizona than they have in Nanaimo or Lethbridge. The Snowbird has
bought a cheaper US car in Arizona. The Snowbird has rented out
their house in Campbell River and is living in a motorhome in
Arizona and California in the Winter and travels through Canada in
the Summer. The Canadian has taken out a US Visa card and
Mastercard. In other words, their centre of influence has moved
south and their closer ties are not "definitively" in Canada
anymore.
And, if it is half and half or
even close to, the US will quite properly want a tax
return.
But fear not. File the
Canadian tax return first and then file the US tax return and claim
foreign tax credits for the tax paid to Canada. Unless the income is
over $40,000 US, the tax paid to Canada is usually enough to wipe
out any US tax.
If the income is over $40,000
US, there may be a small amount of Alternative Minimum Tax to pay.
The problem is US Immigration Department's crackdown on Canadian
Snowbirds or "border livers" in motorhomes and other semi-permanent
Canadians spending a lot of time in the
U.S.
Let me use a few
examples:
Situation
1
72 year old woman with a
condominium in Phoenix, Arizona. Has been spending every winter in
Phoenix for the past ten years. Owns a $400,000 house in Vancouver.
She rents the house out every winter and has no phone number in
Vancouver "in the book" because her number is disconnected when the
phone book closes in January every
year.
She is driving down to Phoenix
after renting out her house and the INS person at the U.S. Border
questions her closely. He decides that she "might" be trying to live
in the U.S. and turns her back at the border. He asks for such
things as "phone bills", to prove that she lives in Canada and is
only "visiting" in the U.S.
Of course, she is in a tough
spot. She finds it easy to rent out her Vancouver House for a
nominal rent every winter but it is impossible to rent out her
Phoenix condominium in the summer when she is not using
it.
The question is: "where is she
LIVING" and where is she VISITING?
INS has decided that she is
now "living" in the U.S. and "visiting" Canada and that is not legal
without going through a lengthy immigration process. Banned from the
US under these circumstances.
Situation
2:
A 70 year old man who with his
wife has had US resident alien cards for some 20 years and has been
working in the U.S. for the same twenty years and still is. Owns a
house in Vancouver that his mother lives in and a condominium in Los
Angeles that he and his wife have lived in for that twenty
years.
He has a phone number in
Vancouver in the house that his mother lives in and he
owns.
His wife is in Vancouver for
an extended period looking after his mother. He comes up for a
weekend. On the way back through Vancouver Airport, he is questioned
by INS. He innocently tells the story to the INS officer who decides
that with a phone number in Vancouver and his wife in Vancouver for
19 months, and because he has a BC Medical Card, the person has
likely given up his residence in the U.S. and starts to take away
his resident alien card. Calmer heads prevail and he is allowed to
keep it but told he better straighten out his act. He has made the
mistake of having all sorts of Canadian Identification including a
B.C. medical Card. There is a "theory" that he is not allowed to
have a B.C. Medical card if he is a resident of California. U.S. INS
officer reports him to B.C.
Medical.
Situation
3
A couple sell their house and
buy an expensive Canadian Registered (that is the key to
me - if they were not intending to be Canadians, the motorhome would
have been $80,000 U.S. cheaper in the U.S.) Beaver
motorhome. They spend some time in the U.S. and come home for
Xmas and then start off to tour some more. They have been told by a
100 people that they can be in the U.S. as visitors for up to 183
days legally.
After Xmas, they leave to go
south at Huntington Crossing and are told that they cannot enter as
they cannot prove that they "LIVE" in Canada. Their mailing address
is their daughter's house and they have no phone number, etc. Their
vacation - retirement - snowbirding is ruined as they are not
allowed in the US as visitors.
Situation
4
This is out of the Vancouver
Sun, I have not met the people.
Another couple sell their home
and buy a truck and trailer. They spend some time in the U.S. and
come back up to Vancouver to visit. They leave the trailer in
Redmond, Washington, and when they go to go back to the U.S. after
their Vancouver visit, an INS person at Huntington / Sumas crossing
denies them entry on the grounds that they do not have a home in
Canada. He is allowed 3 days compassionate leave to get his trailer
and return to Canada (again, please note that the truck and trailer
are registered in Canada).
Situation
5
A Couple sell their condo in
Vancouver and rent another apartment in the same building. They keep
the same phone number. They buy a house in Whatcom County and check
with an INS officer at the Huntington crossing as to whether they
can take some of their furniture down (this book says they can).
When they go to visit their house at Xmas, 1991 (two weeks after
talking to the INS officer) with a U-Haul trailer full of their
excess furniture, they are questioned at the same Huntington Border
Crossing by the same INS officer and denied entry. The INS officer
asks for such things as address, phone number, etc., and of course,
the address in the phone book is different. The house in the U.S. is
far nicer than the rented apartment. The house in the U.S. is within
commuting distance to the husband's
employment.
The INS officer decides they
are going to "LIVE" in the U.S. and spend occasional time in
Vancouver "if" they even really have a place in Vancouver. They are
denied entry to the US with their excess
furniture.
Situation
6
A couple with a house in
Greater Vancouver and a cabin at Point Roberts are denied access to
their cabin before Xmas. They are told by the INS officer that they
have been in the U.S. too much in 1991 and to come back in
1992.
Situation
7
A young lady with a boy friend
in Seattle whom she visits on a regular basis with no problems is
denied entry to the U.S. when she arrives at the border driving a
rental car. She shares an apartment in Vancouver with someone and
there is no phone in her name. She has stuff in her luggage that
indicates she spends a lot of time in Seattle and also has a picture
in the car which she is talking down as a present. It "LOOKS LIKE"
maybe she lives in Seattle and visits
Vancouver.
Situation
8
Same situation, different
cities. A young lady with a fiancee working in Chicago for two years
flies down to visit him almost every weekend from Toronto. She works
for an airline and it costs her virtually nothing do fly down. She
shares an apartment in Toronto and has no phone, and little Toronto
ID. Even her car is a company car so she doesn't have a car, phone,
or apartment in her name even though she has a full time job in
Toronto and that is obvious from her business identification and a
call to her employer.
The INS officer is not
satisfied. he feels she is living with her boyfriend in Chicago and
commuting to work in Toronto. She is banned from the U.S. but
invited to get proof of her Canadian
Residence.
Situation
9
I do not know this couple
either. It comes from CTV National News. Couple in Maple Ridge are
going to U.S. through the same Huntington crossing. They have been
down dozens of times. They are asked if they have ever been
arrested. He says no because he has a Canadian pardon. For some
reason, the INS people check. He was arrested and charged and
convicted 18 years before for the possession of a single marijuana
cigarette. HER car is seized. At last word, the car was not being
returned and will not be.
Situation
10
Same Crossing. A Vancouver
City Policeman who has a criminal charge against him and is under
suspension is going across the border with his wife and one other
person. His truck is seized for trying to get into the U.S. while
under a charge. It also turns out his wife has a criminal
record.
You see; it does not matter
whether you are asked or not, it is illegal to enter the U.S. if you
have a criminal record or have been arrested unless you have a
waiver from the U.S. Department of Justice. And, if you are taking
someone else across with your car or they borrow your car and drive
across the US border without mentioning the charge (even with a
waiver form), you lose your car.
Situation
11
Osooyos Crossing, Aug 19,
1992. A couple and their two children and 8 friends are crossing to
the U.S. for Mexican Food at Oroville, Washington. They are in a 33
foot motorhome and INS decides to question all people asking where
born, what citizenship, where they live, and have you ever been
arrested. Driver says yes but not convicted. INS officer takes
information and comes back a few minutes later and bans driver from
U.S.
INS officer warns all other
members of party that they are not to assist driver across U.S.
border or they can be arrested themselves. Tells driver "I am sure
glad you said YES, or I would have had this motorhome". It took
"david ingram" 4 months to get an official waiver to go back
to U.S.
You see, an arrest in Canada
and either a "Stay of proceedings", or an "Absolute Discharge", or a
"Conditional Discharge" is treated by the U.S. as if you were
convicted, even if the offense is minor. Getting charged with
stealing a loaf of bread can have you banned from the U.S. for
life.
The solution is to get a
"Canadian Non-Resident Alien Border Crossing Card" and waiver. This
costs $80.00 U.S. and requires fingerprinting by the RCMP and FBI
but is a relatively painless experience. If you wish more
information on this topic, we would be glad to assist. There are
also regular advertisements for "Pardons" and "U S Waivers" in the
Vancouver Sun and Province. Write for more information to: David
Ingram, 201-935 Marine Drive, North Vancouver, B.C., V7P 1S3 or fax
to (604) 649-4759 or call (604)
657-8451.
Situation
12
A "highly placed" lady from
Ottawa decides to sneak into a class at a University in the U.S. for
a semester. She does not bother with the formality of a Student
"F-1" visa but just "goes south". She has student cards, library
cards, etc. Then she comes up to Canada for a weekend with a fellow
lady student from the University (these are not kids, these are 30
year old women). When going back to the U.S. in the U.S. student's
car, she is questioned and the U.S. student I.D. is found. She is
banned from the U.S.
She has been identified and
should know that an INS officer might check later at the U.S.
University to see if she has snuck in, BUT she just isn't
thinking.
She calls a Canadian Friend
and tells her what happened. the Canadian says, don't worry, I'll
take you down, we'll just say we are going shopping". The Canadian
picks up the Canadian Student and they arrange to meet the American
student on the other side of the border. They make it across but the
U.S. Border people follow the American car which now is short a
Canadian Student.
When they meet at a U.S.
Shopping centre to transfer baggage, etc., they are surrounded by
U.S. Border patrol cars. All three are arrested and spend 8 hours in
jail. $51,000 worth of cars are impounded. The two Canadians are
deposited back at the Canadian Side of the border and spend $70.00
on a taxi to get home.
The Canadian car is a lease
car with hefty payments. Finally, with the payment of a $2,000
"penalty", the leasing company gets the car back but is told that
they may not give it back to the Canadian, nor may they make any
special financial arrangements with her on another car. i.e. she is
to get no benefit and she is expected to make up any shortfall to
the leasing company. I do not know what happened to the American's
car. Stay tuned.
U.S. to
CANADA
Please note that the Canadian
Customs are getting tougher every day. In 1989, the borders south of
Vancouver seized some 1,000 cars. In 1991, they seized 10,000 cars
from returning Canadians and U.S.
visitors.
In fact, a drunk driving
charge in the U.S. bans a U.S. citizen from Canada for life. The
U.S. is far more sophisticated when it comes to waivers and entry of
people with problems. Smuggling, particularly cigarettes, firearms,
and alcohol will get you severe penalties. It isn't worth
it.
