U.S. tax liability: Our tax specialists answer your questions

A tax specialist is a professional who specializes in the application and interpretation of tax rules and regulations. These often complex rules are constantly evolving. The tax specialist’s role is to advise clients so that their tax burden is minimized to the extent permitted by law. The courts in all jurisdictions have long recognized that, unless otherwise  provided by law, taxpayers are entitled to arrange their affairs to attract the minimum amount of tax.

We have called upon the contribution of tax experts from the Raymond Chabot Grant Thornton network for a series of articles providing answers to questions raised by our clients doing business abroad.

Q: If I spend more than 130 days per year in the U.S., am I liable to U.S. taxes?

A: A non-resident of the U.S. is liable 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 2016:

2016: 1 X 130 days                     =                     130 days

2015: 1/3 X 130 days                  =                       43 days

2014: 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 to the IRS Form 8840 (Closer Connection Exception Statement for Aliens).

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 liable for 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 liable 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. You will also have to provide information regarding your assets outside of the United States.

Do you have questions relating to U.S. tax issues? The tax experts of Raymond Chabot Grant Thornton can help you!

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