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Updated on February 11, 2022
Canadian taxpayers who spend time in the United States may be subject to taxes in this country, based on certain conditions and exemptions prescribed by the law.
Here are the answers to the FAQs posed to our American tax experts on this topic.
Q: If I spend more than 130 days per year in the U.S., am I subject to U.S. taxes?
A: A non-resident of the U.S. is subject to U.S. taxes if he passes the substantial presence test, that is, if he is present in the U.S. for more than 183 days over a three-year period. For the purposes of the application of this test, the number of days in the U.S. is calculated as follows:
Number of days in the U.S.
in the current year X 1
+
Number of days in the U.S.
in the previous year X 1/3
+
Number of days in the U.S.
in the second preceding year X 1/6
Example for 2021:
2021: 1 X 130 days = 130 days
2020: 1/3 X 130 days = 43 days
2019: 1/6 X 130 days = 22 days
Total: 195 days
Q: If the result of this calculation is greater than 183 days and I pass the substantial presence test, do I have to file a U.S. tax return as a U.S. resident and be taxed in the U.S. on my world income?
A: There is an exception (closer connection exception) that allows a taxpayer to be considered a non-resident of the U.S.. To take advantage of the closer connection exception, the taxpayer must meet the following conditions:
- During the current year, the taxpayer was present in the U.S. for less than 183 days;
- During the current year, the taxpayer’s tax home is not in the U.S.;
- During the current year, the taxpayer maintained closer economic and social ties with the country of his tax domicile than with the U.S.
If the taxpayer meets these criteria, he must complete and send the IRS Form 8840 (Closer Connection Exception Statement for Aliens) to the Internal Revenue Service before June 15 of the following year.
Q: If during the current year I spend more than 183 days in the U.S., and I do not qualify for the closer connection exception, am I subject to U.S. taxes?
A: Yes. Under U.S. domestic law, you will qualify as a U.S. resident for tax purposes and will therefore be subject to U.S. taxes on your world income. Fortunately, Canada and the U.S. signed a tax treaty that overrides this U.S. law. Under Section IV of this treaty, you may be considered a Canadian resident for tax purposes. In such a case, you will simply have to file a $0 U.S. tax return (1040NR, U.S. Nonresident Alien Income Tax) along with a form that will allow you to avail yourself of the provisions of this tax treaty. The deadline to file these forms is June 15 of the year following the calendar year to which the filing obligation applies.
Please note that this exemption from U.S. tax liability under the tax treaty does not relieve you of the obligation to file U.S. information forms for assets you hold outside the United States. Failure to comply with this requirement could subject you to substantial penalties.
Do you have questions relating to U.S. tax issues? Our tax experts can help you.