It has become appealing for many Canadians to consider purchasing U.S. Real Estate properties in the sunny states of the US to escape the chilly winter of home.
Whether they opt to go for houses and lots or prefer the more practical condominiums units, it is important that they know about certain tax laws implemented by the Internal Revenue Service (IRS) to avoid issues in the future.
The US Income Tax Law holds that, the US taxation system subjects a foreign national or foreign citizen in different ways with regards to taxes, depending on their residency status, i.e. whether they are residents or non-residents. The system requires US resident aliens to file their tax returns and settle their US taxes on all the income they generated, regardless of where they are sourced out. Conversely, the tax system generally tax non-resident aliens on their income generated from the US only. Special debits or dispensations are limited to non-resident aliens because they also have restrained or minimal exposure to the US tax system.
In an article written by Joseph C. Grasmick, a business immigration lawyer, he maintained that it is possible for a Canadian snowbird to be considered a resident of both Canada and the US in accordance with the tax laws in each country. The Canada-United State Income Tax Convention, otherwise known as the Canada-US Tax Treaty lays out certain provisions that relieves snowbirds from being considered residents of both US and Canada. Provisions state that:
- A person shall be considered a resident exclusively of the country where he/she owns a permanent dwelling, i.e. US or Canada.
- In the event that a permanent dwelling is present in both US and Canada, the person shall be considered a resident exclusively of the country where his/her personal social and economic ties are stronger.
- If his/her personal social and economic ties are undeterminable, the person shall be considered a resident exclusively of the country where a habitual abode, a regular or accustomed dwelling, is present.
- In the event that a habitual abode is present in both US and Canada, the person shall be considered a resident exclusively of the country where he/she is a citizen.
- If the person is a citizen of both US and Canada, or in case the person is not a citizen of either countries, the appropriate officials of the countries concerned shall resolve the matter by means of a consensus or a binding accord.
If you are a potential Canadian Snowbird, or you already are one, it is sensible to consult with an immigration lawyer before declaring any residency status. Seek assistance in dealing with any issues concerning taxation in order to avoid penalties or sanctions. You must also do this to avoid any kind of double taxation, for your sake.
Remember, it is a must to respect and follow the laws being implemented by the US as much as it is in your home country. It is a way of returning the good deal you had (or will have) from the U.S. Real Estate agents, and the satisfaction and delight you are certain to keep in the warmth and comfort of your home in one of the sunny states of the US.