Do you travel to the US for the winter for long periods of time? If so, you may need to file an exception to filing a US tax return that is due June 15 each year.
If you don’t want to face some possible penalties, you may need to file a form called the Closer Connection Exception Statement for Aliens, IRS form 8840.
Many people think that if you spend less than 180 days in the US, you do not have to file; but that is not completely correct. It depends on how many days you spent in the US in the past three years. If you spent more than 121 days in each of the past three years (2013, 2012, and 2011) you should be filing for an exception.
The exception acknowledges that you had a significant presence in the US, but that you have closer ties to Canada.
Here’s how the formula works: calculate the number of days you were in the US in 2013. Then calculate the number of days for 2012 and for 2011. Remember to include any additional days you went on short trips for gambling and shopping!
You need to file for an exception if you are considered to have a “substantial presence” in the US in the past three years. If it exceeds 182 days, you need to file.
I help clients with these forms and find it easiest to ask about their most recent winter holiday (often Nov/Dec 2013 to Mar/Apr 2014); then the previous one, and the one before that and the one before that. Then we look at the actual calendar days. I now have that info on file so when we complete the form each year, I just need to ask about the recent trip, add it to the info I already have and then it’s easy to calculate.
The actual formula works like this: you include all the days in 2013, one third of the days in 2012 and one sixth of the number of days in 2011.
You are near the 183 days if you spent more than 121 days in each of the three years (2013 – 121 days; 2012 is 40 days (1/3 of 121) and 2011 is 20 days (1/6 of 121). That totals 181. You likely have to file; remember the magic number is 183 days.
Why has this not been a big deal in the past? Well, it was harder for the US government to keep track of you. Remember we could cross the border with just our driver’s license and birth certificate. Now we need our passports. And don’t you think they are keeping track of when you came into the country and when you leave??
So if you think you might qualify as having a “substantial presence” in the US, better get that form completed before June 15. You can find it on the US taxation (IRS) website: www.irs.gov/pub/irs-pdf/f8840.pdf
If you don’t have access to the internet, or you need some help, give me a call or drop by my office.
Foreign Investments
There is a new form for investors with substantial assets ($100,000 or more) outside of Canada. The 2013 tax filing year is the first year we (tax pros and clients) had to complete this new form.
The form is T1135: Foreign Income Verification Statement and needs to be completed for 2013 and later taxation years. The deadline to complete the form for the 2013 tax years is July 31 2014.
The purpose of the form is to “crackdown on tax evaders”: those not reporting foreign income on personal income tax returns.
You need to file this form if at any time during the year you owned specified foreign property costing more than $100,000.
Some examples? Could be clients that own US stocks or mutual funds in a brokerage account. Could be clients that own property in the US (or any country for that matter).
However, if the property is used mainly (more than 50% of the time) for personal use, then it is not considered an “investment asset”. But if you have property outside of Canada that you rent out, you may need to report it.
I recommend reviewing the CRA website for more information.
A quick reminder that the self employed, we have until June 16 (June 15 is a Sunday) to file our 2013 tax returns. However any amount owing has started to accrue interest since May 1. The interest rate is 5%, so not bad interest rate for a short term loan if you owe.
But don’t file after the June 16 deadline. The penalties are harsh: 5% of what you owe, plus 1% per month, plus the interest. And if this isn’t the first time you haven’t filed on time, the penalties are even worse. Even if you cannot pay, get it filed to avoid the penalties!
Anni Markmann is a tax professional working, living, and volunteering in our community. Contact Anni at 204-422-6631 or anni@SteAnneTaxService.ca or 36 Dawson Road in Ste Anne.