Section 9 – U.S. Tax
Sojourning in the U.S.
Canadian residents who sojourn in the U.S. for 183 days or more in a year will generally be considered resident in the U.S. and will have to file a U.S. federal personal income tax return no later than June 151 of the following year.2 The tax balance must be paid no later than April 15 in all cases, failing which, interest and penalties may apply. Each U.S. state has its own residence rules, and the filing period is similar to that of the United States. If a taxpayer is both a resident of Canada and a deemed resident of the U.S., the Canada – United States Tax Treaty will serve to determine the taxpayer’s residency status.
Canadian residents will also be considered residents of the United States for American tax purposes if they meet the “Substantial Presence Test” in the year. They meet the test if they spend more than 30 days in the U.S. in the current year and more than 182 days in total over a three-year period based on:
- The total number of days spent in the United States in the current year;
- One-third of the days spent in the United States in the preceding year; and
- One-sixth of the days spent in the United States in the second preceding year.
Exemple: In 2018, Ms. Lawson acquired an apartment in Orlando, Florida and since then has spent a good part of the winter there. Her friends told her she should not spend more than 182 days in the U.S. if she does not want to be considered an American resident. Having listened to this advice, she spent 132 days, 114 days and 144 days in 2018, 2019 and 2020 respectively.
In 2020, Ms. Lawson will be considered a U.S. resident by virtue of the three-year criterion, calculated as follows:
|2020 – Current year||144 days|
|2019 – Preceding year: 1/3 × 114||38 days|
|2018 – Second preceding year: 1/6 × 132||22 days|
Taxpayers in the same position may avoid having to file a U.S. return if they file Form 8840 – Closer Connection Exception Statement for Aliens with the U.S. tax authorities by June 15 of the following year providing they satisfy the following conditions:
- For the year in question (2020), they sojourned in the U.S. less than 183 days;
- They do not have and have not applied for a green card (permanent resident of the United States);
- Their habitual residence is in Canada;
- They have maintained close social and economic ties with Canada;
- They do not have any U.S. source income during the year.
As mentioned previously, U.S. states have their own residence rules and filing Form 8840 does not prevent their application.
1 April 15, if the non-resident of the U.S. earned employment income subject to U.S. withholding. In the absence of such employment income, individuals residing outside the U.S. have an automatic two-month extension to file their tax returns on June 15 instead of April 15. 2 As Canadian residents, they are still subject to Canadian income tax.
If you sojourn in the U.S. on a regular basis, be aware of the deemed resident rules.
U.S. Source Income
A non-resident of the United States who receives U.S. investment income, such as dividends, rent, certain interest or other amounts, is subject to U.S. withholding tax of 30% of the amount received. However, the Canada – United States Tax Treaty provides for a reduction, or even a total exemption of the withholding tax under certain circumstances, of the amount withheld if the amounts are paid to a resident of Canada. In Canada, the taxpayer may be entitled to a foreign tax credit (see Section VII).
U.S. Income Reporting
Regardless of their country of residence, taxpayers who earn U.S. source income3 must file a U.S. income tax return unless a specific exemption applies. For federal purposes, the income tax return must be filed by June 15;4 for state purposes, the filing deadline remains April 15 if the U.S. source income is subject to the state tax of one or more states.
A six-month extension may be granted if Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return – is submitted no later than the deadline for the original filing, accompanied by the balance of any income taxes owing. Filing extensions may also be granted by the states.
3 Income from properties in the U.S., partnerships, trusts, rentals, businesses or any other U.S. source income. 4 Or April 15th, if the U.S. non-resident earned employment income subject to source deductions in the U.S. Additionally, in all cases, the tax balance must be paid no later than April 15th, otherwise interest and penalties could apply.
This document is up to date as of September 3, 2020 and reflects the status of legislation, including proposed amendments at this date.