The travails of long-term travel

Before packing your bags for an extended out-of-country stay, make sure you know how leaving the country will affect your legal and financial status.

When David Wilson, 67, and his wife, Susan, retired in 1992, they moved from Manitoba to British Columbia and spent winters in their new winter home in Phoenix, Ariz. Other trips included visits back to Winnipeg.

What they didn’t anticipate was that travelling seniors can attract attention. By 2002, investigators of B.C.’s ministry of health swooped into their private lives trying to prove the Wilsons [not their real name] had been out of province more than six months and were, therefore, not eligible for provincial medical coverage. Such a loss of protection could have catastrophic financial consequences.

“The reality is that once the [Health Services Investigations Unit] are on your case, they want [to see] everything you own. They want to come into your house and go through your drawers. [They are trying to prove] you are not a Canadian and you do not qualify for health care,” says Wilson. For the Wilsons, a few long-discarded receipts would have proven residency.

By 2003, the investigation was halted as the British Columbia government confirmed earlier correspondence to the Canadian Snowbird Association that intra-provincial or territorial travel would not be added to the out-of-country day total.

The Wilsons are part of the growing number of Canadian snowbirds who are finding that the days of easy, worry-free coming and going are gone. In some cases, it’s the small things that cause big headaches. While the Wilsons didn’t lose their health coverage, they sure came close. And the problem is not unique. Poor planning can cause huge tax liabilities and estate nightmares.

Whether one lives in the United States on a temporary or permanent basis, one must pack a financial strategy in order to protect assets, leverage tax advantages, ensure the security of family members and prevent headaches.

One of the basics in putting together a snowbird financial plan is making sure one doesn’t inadvertently fall into the tax jurisdiction of the U.S. Canadian residents who winter in the U.S. are technically subject to U.S. income tax if they exceed 182 days in the U.S. in any one calendar year. To avoid this, one must fill out U.S. Form 8840 (Closer Connection Exemption Statement for Aliens) and file it annually with the Internal Revenue Service.

The form, in essence, acknowledges that you met or exceeded the “substantial presence test” but are not going to be filing a U.S. income tax return due to the fact that you maintain “a closer connection” to a foreign country, such as Canada, where you will be paying annual income tax.

Gerry Brissenden, president of the Canadian Snowbird Association, hears stories of Canadians who do not file a Form 8840 and exceed the 182-day threshold. If detected, they could face a number of problems. For example, any rental income from a U.S. property could be subject to a 30 per cent withholding tax, which the tenant or property management agent is required to submit to the IRS. Brissenden also says that if you stay longer than the 182 days without filing, you can be banned from the U.S. for up to 10 years.