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With close to 15 million baby boomers retiring over the next 15 years in Canada there has been a huge trend to retire somewhere warm and paradisiacal. Most Canadians are looking for a sunny place to spend the sunset years of their lives.
With so many places to retire worldwide, one can become dizzy with the available of options. Of course there are the obvious concepts of taking advantage of the cheap US housing market by purchasing a home somewhere like Florida or Arizona. With housing prices starting as low as $50,000USD it’s easy to be lured into the idea of a good deal. Canadians are picking up these distresses sales in hordes but a word of caution, BUYER BEWARE.
Most Canadians go down to Arizona with the intention of picking up a winter home, and stay there for 6 months a year. The average Canadian doesn’t realize that spending 6 months a year can qualify you as a permanent resident of the US, and without proper documentation would constitute an illegal act. The IRS has a funny way of measuring the time you spend in the US, it’s called the Substantial Presence test and here’s how it works:
The IRS uses a formula that spans 3 years to decide if you will be considered a US resident for tax purposes or not. If you take all of the days you are present during the current year and add 1/3 of the days you were present the previous year, plus 1/6 of the days you were present two years ago and the total is 183 or above, you will be considered a resident for tax purposes. Here is a little example to illustrate scenario.
If you were physically present 120 days / year for the past 3 years, you would
Add all of the days of your current year, 120 days
Plus 1/3 of the days from the previous year, 40 days
Plus 1/6 of the days for 2 years previous, 20 days
A total of 180 days, only three days below the qualifying mark to be considered a US resident for tax purposes. Basically Canadians spending more than 4 months a year in the US are in jeopardy of committing an illegal act on US soil.
Millions of foreigners continue to spend 6 months a year thinking that they are within the guideline of the law when in fact they are in direct violation of IRS’s guidelines and potentially liable for back taxes that would also put their Canadian assets at risk to the IRS.
Link to the IRS website for authenticity.
http://www.irs.gov/businesses/small/international/article/0,,id=96352,00.html
By Aaron Fisher
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