Page 28 - INSIGHT MAGAZINE_October 2024

ADVERTORIAL
DOLLARS & SENSE

U.S. Residency rules May affect you when

spending considerable time in the U.S

If you are a Canadian resident and not born in the US, who You must however, complete a US form 8840-Closer
spends a considerable amount of time or winters in the US, you Connection Exception Statement that shows you have a closer
may be surprised to know that your presence in the US, even connection with Canada.
if you are there only on holidays, could create income tax and
other reporting obligations. This is especially true if your US If you do meet the substantial presence test and were present
residency status becomes US resident alien. in the US for at least 183 days or more as calculated by the
formula, you cannot claim the closer connection exemption.
Determining US residency status However, you may be able to claim a treaty exemption to be
In order to determine your US residency status, the Internal deemed a resident of Canada. You will not have to file US
Revenue Service (IRS) applies a test known as the "substantial resident tax return and pay tax on worldwide income if you
presence test". If you meet the substantial presence test you claim exemption. You must file a US non-resident tax return
may be considered a US resident alien. There are circumstances (1040NR) and attach a treaty exemption statement—Form
where Canadian residents may be exempt from the status of 8833—which indicates you are a resident of Canada under
US resident alien under the substantial presence test and may the treaty. If you were present in the US for more than 183
not have to file a US resident tax return. One has to days and meet the presence test you may also need
apply closer connection to Canada. However, failure to file form 8938, Statement of Foreign financial
to understand the US tax obligations imposed by the Assets and Form TDF 90-22.1, report of Foreign
IRS may result in costly penalties. Bank and Financial Accounts. Even if you receive
the treaty exemption to be treated as non-resident
The substantial presence test involves calculating alien for income tax purposes, you may still need
the average number of days you spent in the US to file these forms.
during the past three-year period, beginning with
the current year. When counting the number of days Erica Tennenbaum, CFP, FCSI In summary
present in the US, you need to add those days that Senior Portfolio Manager & There is a lot of information to review, and this
you are present for part of the day, such as for casual Wealth Advisor article touches only on the basics. If you’re someone
shopping or watching a hockey game. Each short-term trips who likes to escape our Canadian winters south of the border
is considered to last a day. As a rule of thumb, if you spend or frequents the US often chances are that you will have some
more than four months every year in the US, you will meet type of filing responsibilities under the substantial presence
the substantial presence test after the third year and annually test. It is extremely important to understand how this affects
thereafter, and may be considered a US resident alien. you, and that you are providing the information required to
avoid future penalties.
Possible exemptions Consult with your tax advisor if you require assistance and if you would
If you meet the substantial presence test but were present like a copy please email us at erica.tennenbaum@rbc.com or call
in the US less than 183 days, you may be able to claim a (519) 621-1307.
Closer Connection Exception so that you are not considered
a US resident alien. In this case, if you do not earn US source
income and you earn only US dividends the withholding tax is
generally deducted at source, and provided the correct amount
is withheld, you do not need to file US non-resident tax return.

This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest
available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness.
This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information
suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate
entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence.
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