Trav­el­ling to the U.S.? Don’t for­get Big Brother

There’s more to cross­ing the border than meets the eye

Toronto Star - - STAR BUSINESS JOURNAL - Gor­don Pape

Plan­ning a trip to the U.S. to get away from the cold for a while? You should be aware that Big Brother will be watch­ing at all times.

I re­cently flew to the States for a visit. The U.S. im­mi­gra­tion of­fi­cer at Pear­son air­port asked a few in­nocu­ous ques­tions about the pur­pose of my trip (va­ca­tion) and how long I would be stay­ing. As he was do­ing this, his com­puter scanned my pass­port and I was waved on.

Seems sim­ple enough. But there’s a lot go­ing on in the back­ground that most Cana­di­ans aren’t aware of when they cross the border.

For ex­am­ple, that pass­port scan cre­ated an I-94 record for me. There is noth­ing in my pass­port to in­di­cate this, but the file ex­ists up in the cloud some­where, to be called on by Home­land Se­cu­rity if nec­es­sary.

In­ter­est­ingly, only Cana­di­ans ar­riv­ing in the U.S. by air or sea are is­sued an I-94. If you are cross­ing at a land border point, it isn’t re­quired — yet.

As the ac­count­ing firm of PwC pointed out in a re­cent bul­letin, the I-94 con­tains an ex­piry date that man­dates when you must leave the U.S. Fail­ure to do so could lead to some ex­pen­sive tax con­se­quences.

Com­pli­cat­ing mat­ters is that you aren’t told about your I-94 sta­tus when you en­ter the coun­try. Six months is the nor­mal max­i­mum length of stay, but the Cus­toms and Border Pro­tec­tion (CBP) of­fi­cials have the au­thor­ity to re­duce the length of your visit or even deny ad­mis­sion (as has hap­pened re­cently to some ex­ec­u­tives of cannabis com­pa­nies).

But while CBP doesn’t say any­thing, there is a web page where you can go to check your sta­tus at i94.cbp.dhs.gov. En­ter your name and pass­port num­ber and you can view your travel his­tory, the length of time you can re­main in

the coun­try and print a copy of your form.

If this isn’t com­pli­cated enough, Cana­di­ans en­ter­ing the U.S. as vis­i­tors are given a B-2 sta­tus, which re­quires that they pro­vide ev­i­dence that they only in­tend to stay tem­po­rar­ily. Border agents don’t nor­mally ask for it, but you should have doc­u­ments that show you in­tend to re­turn to Canada, such as a re­turn ticket, proof of prop­erty own­er­ship, etc. The B-2 is valid for six months from the date of is­sue – even if you re­turn to Canada tem­po­rar­ily in the mean­time.

Last year, a friend had a runin with U.S. im­mi­gra­tion when he made a tem­po­rary trip to his Florida res­i­dence in early Septem­ber. He re­ceived a B-2 that ex­pired in early March. When he re­turned in Novem­ber to be­gin what he thought would be a six-month stay, he was told his B-2 would ex­pire March 5 and he had to be out of the coun­try by then. Need­less to say, he was not happy!

If you are trav­el­ling to the States for any length of time, you need to be aware of the po­ten­tial tax im­pli­ca­tions. For ex­am­ple, most peo­ple think that if they stay for less than six months, there’s no prob­lem. In fact, there could be.

If you meet what is called the “sub­stan­tial pres­ence” test, the IRS may swoop – and that’s not some­thing you want to hap­pen.

This test looks at how long you have spent in the States for the past three years. The cal­cu­la­tion in­volves adding the num­ber of days in the cur­rent year with one-third of the days in the pre­vi­ous year and one­sixth in the year be­fore that. If the to­tal is 183 or more, you’re con­sid­ered to be a U.S. res­i­dent and sub­ject to taxes.

This cal­cu­la­tion puts many snow­birds into the 183+ cat­e­gory. But you can es­cape the long arm of the IRS by fil­ing a “closer con­nec­tion” state­ment (form 8840) each year. Ev­ery ac­coun­tant I have talked to who is fa­mil­iar with cross­bor­der tax­a­tion ad­vises do­ing this, but many peo­ple don’t. The IRS seems to ig­nore the forms – no one I know has ever re­ceived an ac­knowl­edge­ment – but there is ac­tu­ally a fine on the books for not com­plet­ing it.

One more point: Many re­tired Cana­di­ans want to spend the win­ter in the sun and de­cide to buy a place of their own. To re­duce the costs, they rent it out when they’re not us­ing it. That trig­gers fed­eral and pos­si­bly state taxes in the U.S. and the in­come must also be re­ported on your Cana­dian tax re­turn. The U.S. form to use is 1040NR.

When the time comes to sell the prop­erty, the IRS will with­hold 10-15 per cent of the pur­chase price and you have to file a re­turn to get any re­fund.

If you’re OK with all that pa­per­work, fine. Frankly, I prefer to rent. Let some­one else han­dle the tax headaches.

DAR­RYL DYCK THE CANA­DIAN PRESS FILE PHOTO

If you are trav­el­ling to the U.S. for any length of time, you must be aware of the po­ten­tial tax im­pli­ca­tions, Gor­don Pape writes.

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