US residency regulations

Many Canadians who regularly spend winters in the United States may find that they are required to fill out a special declaration—the Closer Connection Exemption Statement—to be exempt from paying US taxes.

To determine whether you are one of the Canadians who should file this declaration, you must add up the number of days (or part days) you spent in the United States in 2016, one-third of the days in 2015 and one-sixth of the days in 2014. If this calculation adds up to 183 days or more and you were present in the US for more than 30 days during 2016, you may be considered a US resident for tax purposes under US domestic tax law.

However, you can qualify for the “closer connection” exception if you meet the following provisions:

  • You have not applied for a US permanent resident visa (green card).
  • You were present in the United States for fewer than 183 days in 2016.
  • You have maintained a permanent place of residence in Canada throughout 2016.
  • You can claim a closer connection to Canada.
  • You file the special declaration by June 15, 2017.

The “closer connection” form (Form 8840) cannot be filed late. If you miss the June 15 deadline, you must file Form 1040NR and make a treaty election to avoid US taxation. Green-card holders are not entitled to file this declaration. If you hold a green card, or if you spent more than 182 days in the United States in the current year, you’ll have to rely on the tie-breaker rules in the Canada-US tax treaty to avoid US resident status. In such cases, you’ll be required to file a treaty-based US tax return if you’re relying on the treaty to exempt you from US tax. However, the tax treaty does not relieve the requirement to file foreign reporting forms such as, for example, the FBAR (see Topic 130). As a cautionary note, the US Citizenship and Immigration Service has issued a warning to green-card holders that they may jeopardize their green-card status if they use treaty provisions to be taxed as a non-resident of the United States.

Tax tip: Over the past several years, the United States has issued numerous rules and regulations of concern to Canadians with interests in that country. If you spend a considerable amount of time in the United States each year, contact your tax adviser to ensure you’re complying with these rules.