Flying South for the Winter: Canadian Senior Citizens Could Soon Enjoy More Fun in the Sun
Matthew Walsh
WithumSmith+Brown
Princeton, NJ
Current U.S. tax law allows thousands of Canadians age 55 and older to move into the United States without a visa or a tax filing requirement for a period of up to 182 days. Dubbed Canadian “Snowbirds,” these migrants could soon have the possibility of enjoying an extra two-month stay in the U.S., with new legislation that has proposed a limit of 240 days for visa-less entry.
The proposal to push this limit from six to eight months has been met with “wide support” from both Democratic and Republican representatives, according to Canadian Snowbird Association researcher, Evan Rachkovsky. Due to the limit increase, the U.S. stands to gain an additional bump to the economy due to tourism. However, the implications of such a move are not lost on the tax code.
Although Congress has showed support for the bill, there are still roadblocks that could prove troublesome. Healthcare migration is much less flexible than visa migration, and current Canadian provincial law differs on the amount of time citizens can be out of the country whilst remaining on their provincial healthcare plan. Many of these laws have restrictions less than eight months, creating external and uncontrollable limitations on any legislation passed by the U.S. Congress.
The biggest roadblocks to the potential benefits of the legislation, however, are major tax implications which need to be considered. Under current tax law, taking advantage of two extra months in the sun may subject Canadian citizens to IRS compliance laws. Under these laws, snowbirds would be subjected to worldwide taxation of income, and may impose additional taxes for those who own stakes in certain Canadian companies (passive foreign investment companies). Finally, these Canadians could be subjected to heightened disclosure compliance in regards to foreign retirement funds and other off-shore investment accounts. These implications have the potential to nullify any increase in trade and tourism between the two countries due to the unwillingness of snowbirds to subject themselves to such stringent requirements and increased costs.
The sun may be warm, but the U.S. tax code is icy.
