Canadians who are not citizens of the United States or green card holders and have no source of income in the United States can be subject to income taxes in the United States on their worldwide income if they are deemed to be a resident alien because of the Substantial Presence Test.

In order to determine any possible tax consequences or implications for those Canadians that spend a significant amount of time in the United States, you must determine whether you are a Non-Resident Alien or a Resident Alien.

Are You A Resident Alien Or Non-Resident Alien, In The Eyes Of The IRS?

The Internal Revenue Service determines your status by the number of days you spend in the United States over a 3 year period using what is referred to as the Substantial Presence Test.

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

  • 31 days during the current year, and
  • 183 days during the 3 year period that includes the current year and the 2 years immediately before that, counting:
    • All the days you were present in the current year, and
    • 1/3 of the days you were present in the first year before the current year, and
    • 1/6 of the days you were present in the second year before the current year.

Below is an example of the method of calculations:

You were physically present in the United States on 120 days in each of the years 2011, 2012 and 2013. To determine if you meet the substantial presence test for 2013, count the full 120 days of presence in 2013, 40 days in 2012 (1/3 of 120), and 20 days in 2011 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2013.

Example of Substantial Present Test Calculation

Note: “Days of Physical Presence” includes days that you run across the border to get your groceries or to fill up your tank with gas. It is not limited to only a 24 hour period. If you are present in the United States for 5 minutes, that is considered a Day of Physical Presence and must be factored into the calculation above.

There are of course exemptions available. Click here to see more on determining alien tax status or to see if you qualify as an exempt individual to exclude certain days you were present or if the Closer Connection exemption is available to you.

Tip: Keep a pocket calendar with you at all times. Whenever you run across the border, whether it be for a quick fill up at the gas station or a two week long vacation, write it in your calendar. If it is found that you are required to file a Tax Return in the United States, you will have to list each and every day that you are present, not just an estimated number of days. You will spend less time trying to figure out the exact days you were present in the United States if you use a pocket calendar.

Disclaimer:

This information is provided as an information service only and is not intended to substitute for competent professional advice. Details should be confirmed with your financial advisor and tax preparer and no action should be initiated without consulting a professional advisor.
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