Keep These Facts in Mind When Spending the Winter Down South
Bathing time along a sunny Florida beach front (Photo credit: Boston Public Library)
The mobilization of Canadians to the sun belt is something to behold every year.
The Americans are certainly a lot more welcoming than they were 200 years ago but they still have more than a few rules when it comes to visiting.
At the top of the list of don’ts is not running afoul of the Internal Revenue Service and that means keeping close track of the dates you’ll be in the United States and filling out the proper forms when required, so you don’t trigger any tax consequences.
The general perception is you can stay in the United States for six months and not do anything. It’s not quite that simple.
“One of the first things you are going to have to do is count how many days [you’ll be in U.S.],” says Mr. Rachkovsky.
A proposed rule change now being considered in the United States — it has passed in the U.S. Senate but not the House of Representatives — would allow Canadian retirees to actually spend up to eight months a year stateside.
“That’s just from an immigration standpoint,” said Mr. Rachkovsky, adding there is whole different test for how you are treated from a tax perspective.
The IRS uses what is known as the substantial presence test which takes into consideration the amount of time you have been in the U.S. Over the last three years. It must average no more than four months over any three years.
If you are above that level, you are considered a resident alien and to not be treated that way for tax purposes you have to fill out a simple two-page form every year which allows you to stay up to six months.
“The majority of our members file the form, it is best to be on the right side of the IRS,” says Mr. Rachkovsky.
What you ultimately want to avoid is a mountain of paperwork that includes disclosing every bank account you have or have an interest in anywhere outside the United States, says Kevyn Nightingale, an expert in Canadian and U.S. Tax with MNP LLP.
“It’s going to be complicated and expensive,” he says, about anyone who wants to stay past the 182-day mark.
There’s a long list of questions Canadians need to consider before they become Snowbirds. Here are a few to keep in mind:
What’s the first thing you have to ask yourself before becoming a Snowbird?
“Can you really afford it?” says Lise Andreana, a certified financial planner from Niagara-on-the-Lake, Ont. “You have to cost it out and see if it’s achievable and that means looking at your operating costs and ways you can save.”
Should I buy or rent?
That is the No. 1 question for many. Ms. Andreana says you need to ask yourself how long you plan to be stateside. She says the first year should be spent renting to make sure you like being a Snowbird and also to make sure you’ve picked the right community for retirement. “Sometimes owning a second home is a luxury,” she says.
Can I work while I’m down south?
You need a work visa. The rules are very precise. Even if you’re doing say some type of consulting work for a Canadian company while stateside, you need that visa to be on the right side of the law. “If they don’t get caught, I guess it’s okay,” says Mr. Nightingale, about people ignoring the law.
How tough can the IRS get?
The agency has cracked down on people doing work on their property which is considered investment real estate as opposed to a principle residence.
“I had a client of mine who told me some Snowbird was painting his own condo unit and the maintenance guy, usually hired by other residents, didn’t like it and called immigration people,” said Mr. Nightingale. “[That Snowbird] was now working in the U.S. Illegally, even though it was his own unit.”
What about opening bank and investment accounts?
There is nothing to stop you from opening a U.S. Stock trading account but that will mean more paperwork and probably not worth the trouble. A bank account is more of an issue for the Canadian government which requires you to declare all foreign accounts. If you have more than $100,000 in assets in the United States, based on their cost, there is a form you have to fill out with your tax return.
What about my Canadian health benefits?
Every province is different with each one having different residency requirements. While the U.S. Allows you to stay for six months, in Ontario, for example, you can be gone seven months or 212 days, and remain eligible for coverage. British Columbia and Manitoba agreed in 2013 to the same rule.
“That additional month is for international travel or even travel in Canada,” said Mr. Rachkovsky, about the gap between six and seven months.
Do you have any paperwork to prove you’re coming back to Canada?
Copies of property deed, utility bills, credit card and bank statements will help convince U.S. border people you’re not planning to stay forever.
“Under the U.S. Immigration and Nationality Act, there is a presumption in law that every visitor is arriving in U.S. with the intention to be a permanent immigrant. The onus is always on the traveler,” says Mr. Rachkobvsky.
If you are spending the entire winter in the U.S., should you be concerned about exchange rates?
Most credit cards will charge you a 2.5% fee on any foreign transaction. The Canadian Snowbird Association says it has a currency exchange program that allows money to be sent to a U.S. account every month. On $10,000, you could save you $250.
What do you need to know about travel health insurance?
“You need to check if there is a time limit for out-of-country coverage,” says Dave Minor, a vice-president at TD Insurance. Some policies will require you to travel back to Canada for a day to remain valid. A longer stay can require a more extensive underwriting ahead of time to make sure your coverage is valid.
Pre-existing conditions is the major rider you’ll find in travel policies. Many policies don’t cover you at all for pre-existing conditions and most require a period of stability before you can travel and be covered.
How much health insurance do you need?
Mr. Minor says $1-million is the minimum that you need but some companies require $2-million. It’s important to ensure emergency transportation is part of coverage because if you need a special flight to get back to Canada, and back to nationalized health care, somebody will have to pay for it up front.
Do I need to change my car insurance?
Most policies are valid for driving in the United States but considering how high judgments can run in the U.S. you might want to increase your liability from $1-million to $2-million. If you’re renting in the U.S., your existing car insurance policy might cover you for a rental car provided your normal car is parked back in Canada. But that portablity is usually limited to 30-day rentals.
What about your home insurance?
If you are going to away for seven days or more, many policies require that somebody come by and check on your house for your insurance to be valid. “I don’t know of any policies that allow you to just take off,” said Mr. Minor.
And don’t forget that the unit you are renting or owning in the United States requires its own insurance.