Please note
Penalty for not filing the 8840: If you do not timely file the 8840 form, you will not be eligible to claim the closer connection exemption and may be treated as a US resident. ( http://www.irs.gov/Individuals/International-Taxpayers/Conditions-for-a-Closer-Connection-to-a-Foreign-Country)
We provide the following access to US Internal Revenue Service Forms for the convenience of our members.
The forms can be downloaded by clicking on the links below.
U.S. INTERNAL REVENUE SERVICE FORMS
8840 Closer Connections
(download form at: http://www.irs.gov/pub/irs-pdf/f8840.pdf )
or click on the links above
W8-BEN Certificate of Foreign Status
(download form at: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf )
or click on the links above
8840 - Closer Connection Exemption Statement for Aliens
Canadian residents who winter in the U.S. are technically subject to U.S.income tax if they exceed a specific number of days (based on a calculation on the form 8840) in the U.S. in any one year.
To avoid U.S. taxation, IRS form 8840 (Closer Connection Exemption Statement for Aliens) needs to be filed annually with the U.S. 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.
You will be considered to have a "closer connection" with a country other than the U.S. based on the location of:
Canadians should pro-actively complete and file a new 8840 form each year with the U.S. Internal Revenue Service. This is a positive acknowledgment that you are entering the U.S. each year as a "temporary visitor for pleasure" and are complying with U.S. tax laws. A photocopy of each year's completed form should also be carried, when crossing the border into the U.S. the following year, to indicate that you are entering the U.S. as a temporary visitor from Canada.
W8-BEN - Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
If you have a bank account with a financial institution in the U.S. that earns interest on deposits, then you should complete IRS form W8-BEN (Certificate of Foreign Status) with your U.S. financial institution to avoid possibly having30% of any interest earned on your deposits withheld and sent to the IRS.
As Canadian residents are aware, bank interest earned on their accounts(regardless how small) is considered a form of taxable income when completing each year's Canadian income tax return with the Canada Revenue Agency (CRA) -formerly known as Revenue Canada.
Similarly, Canadian banks are required to withhold 30% (the maximum income tax rate) of any bank interest they pay to foreigners on their Canadian bank accounts because non-Canadians rarely receive T5 slips and complete a Canadian income tax return. Non-Canadians must, in turn, complete a Canadian income tax return in order to receive any refund.
In the U.S., a similar situation exists for U.S. banks and credit unions paying interest earned on the accounts of Canadians (foreigners).
IRS form W8-BEN is a withholding tax exemption form that the bank or credit union must keep on file to explain to the U.S. Internal Revenue Service why they did not hold back any bank interest paid to you or conversely did not issue you the U.S. equivalent of a Canadian T5 income tax slip.
Unlike the 8840 form that is sent directly to the IRS each year, the W8-BENform is kept on file by the financial institution for IRS audit purposes and is valid for up to three years.
8840 Closer Connections
(download form at: http://www.irs.gov/pub/irs-pdf/f8840.pdf )
or click on the links above
W8-BEN Certificate of Foreign Status
(download form at: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf )
or click on the links above
8840 - Closer Connection Exemption Statement for Aliens
Canadian residents who winter in the U.S. are technically subject to U.S.income tax if they exceed a specific number of days (based on a calculation on the form 8840) in the U.S. in any one year.
To avoid U.S. taxation, IRS form 8840 (Closer Connection Exemption Statement for Aliens) needs to be filed annually with the U.S. 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.
You will be considered to have a "closer connection" with a country other than the U.S. based on the location of:
- Your permanent home.
- Your family.
- Your personal belongings, such as cars, furniture, clothing, and jewellery.
- Your current social, political, cultural, or religious affiliations.
- Your business activities (other than those that constitute your tax home).
- The jurisdiction in which you hold a driver's licence.
- The jurisdiction in which you vote.
Canadians should pro-actively complete and file a new 8840 form each year with the U.S. Internal Revenue Service. This is a positive acknowledgment that you are entering the U.S. each year as a "temporary visitor for pleasure" and are complying with U.S. tax laws. A photocopy of each year's completed form should also be carried, when crossing the border into the U.S. the following year, to indicate that you are entering the U.S. as a temporary visitor from Canada.
W8-BEN - Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding
If you have a bank account with a financial institution in the U.S. that earns interest on deposits, then you should complete IRS form W8-BEN (Certificate of Foreign Status) with your U.S. financial institution to avoid possibly having30% of any interest earned on your deposits withheld and sent to the IRS.
As Canadian residents are aware, bank interest earned on their accounts(regardless how small) is considered a form of taxable income when completing each year's Canadian income tax return with the Canada Revenue Agency (CRA) -formerly known as Revenue Canada.
Similarly, Canadian banks are required to withhold 30% (the maximum income tax rate) of any bank interest they pay to foreigners on their Canadian bank accounts because non-Canadians rarely receive T5 slips and complete a Canadian income tax return. Non-Canadians must, in turn, complete a Canadian income tax return in order to receive any refund.
In the U.S., a similar situation exists for U.S. banks and credit unions paying interest earned on the accounts of Canadians (foreigners).
IRS form W8-BEN is a withholding tax exemption form that the bank or credit union must keep on file to explain to the U.S. Internal Revenue Service why they did not hold back any bank interest paid to you or conversely did not issue you the U.S. equivalent of a Canadian T5 income tax slip.
Unlike the 8840 form that is sent directly to the IRS each year, the W8-BENform is kept on file by the financial institution for IRS audit purposes and is valid for up to three years.
Snowbird Season – How Many Days Is Too Many?
September 8, 2012, by Joseph Roberge, (reprinted with permission)
Over the last couple of years we have written an article regarding the maximum number of days that Canadians can spend in the US without being
considered a US resident for tax purposes and not surprisingly it garnered a lot of interest. As was the case last year, we feel it is likely worthwhile to review the article again as many snowbirds will soon be starting to plan when they will head south later this fall.
If you are a Canadian resident and not a US citizen or green card holder, you could still be considered a US resident alien—a status most snowbirds would like to avoid since it means you will have to file a US resident tax return—a requirement imposed on US citizens and residents (or, those deemed to be residents for tax purposes).
The US has what is referred to as a substantial presence test. It used to be that people were considered US residents for tax purposes if they spent 183 days in the country (that’s basically 6 months plus a day). While this part is still true, it is only part of the substantial presence test which is a two-step process as follows:
Step 1: Were you physically present in the US for at least 31 days in the current year? If the answer is “yes” (and it certainly would be if you spent 183 days in the country), you then proceed to step 2 which is a bit more complicated.
Step 2: Using the following formula, does the weighted total number of days spent in the US over the last three years equal or exceed 183 days? The formula has you add all the days spent in the US in the current year plus 1/3 of the days you spent in the US last year plus 1/6 of the days spent in the US the previous year.
So, if you spent at least 31 days in the US in the current year (Step 1) and if the formula in Step 2 results in an answer of 183 days or more over the last three years, you will be considered a US resident alien.
Let’s take a look at an example where you spent 130 days a year in the US for each of 2009, 2010 and 2011. In this example the formula in Step 2 would result in 195 days of presence in the US—this year’s 130 days plus last year’s 130 days divided by 3 plus 2009’s 130 days divided by 6. The result is 130+43+22=195. In this example you do meet the substantial presence test in 2011.
If you play with the numbers a bit, you’ll see that if you spend more than four months (122 days) every year in the US, you will meet the substantial presence test after the third year and annually thereafter.
So, if this is your situation, you should make sure to seek some professional advice to understand your options more thoroughly. Briefly, however, you can
generally spend 182 days in the US every year without offending the US tax man by filing the Closer Connection Exception Statement for Aliens (US form 8840).
Basically if you vote, pay taxes, carry on a business and have your family and permanent residence located in Canada you will be deemed to have a “closer
connection” to Canada and will be exempt from paying US income taxes as long as you file the form every year prior to June 15th of the following year (the form for 2012 is due prior to June 15th of 2013). There may be some instances however where this will not exempt you from filing a US tax return which is why we recommend that you seek the professional advice of your tax advisor.
For those spending more than 183 days in the US this year, you cannot claim a closer connection exemption however you may be able to claim a tax treaty
exemption which is then filed with the US tax return that limits the amount of taxes you will owe.
The bottom line is that Snowbirds should likely be focusing on 122 days—not 183—if they want to avoid a lot of paperwork and professional fees.
Joseph Roberge, B.Comm. of Roberge Holtby Gibson Wealth Management is a Investment Advisor with RBC Dominion Securities in Kelowna.
September 8, 2012, by Joseph Roberge, (reprinted with permission)
Over the last couple of years we have written an article regarding the maximum number of days that Canadians can spend in the US without being
considered a US resident for tax purposes and not surprisingly it garnered a lot of interest. As was the case last year, we feel it is likely worthwhile to review the article again as many snowbirds will soon be starting to plan when they will head south later this fall.
If you are a Canadian resident and not a US citizen or green card holder, you could still be considered a US resident alien—a status most snowbirds would like to avoid since it means you will have to file a US resident tax return—a requirement imposed on US citizens and residents (or, those deemed to be residents for tax purposes).
The US has what is referred to as a substantial presence test. It used to be that people were considered US residents for tax purposes if they spent 183 days in the country (that’s basically 6 months plus a day). While this part is still true, it is only part of the substantial presence test which is a two-step process as follows:
Step 1: Were you physically present in the US for at least 31 days in the current year? If the answer is “yes” (and it certainly would be if you spent 183 days in the country), you then proceed to step 2 which is a bit more complicated.
Step 2: Using the following formula, does the weighted total number of days spent in the US over the last three years equal or exceed 183 days? The formula has you add all the days spent in the US in the current year plus 1/3 of the days you spent in the US last year plus 1/6 of the days spent in the US the previous year.
So, if you spent at least 31 days in the US in the current year (Step 1) and if the formula in Step 2 results in an answer of 183 days or more over the last three years, you will be considered a US resident alien.
Let’s take a look at an example where you spent 130 days a year in the US for each of 2009, 2010 and 2011. In this example the formula in Step 2 would result in 195 days of presence in the US—this year’s 130 days plus last year’s 130 days divided by 3 plus 2009’s 130 days divided by 6. The result is 130+43+22=195. In this example you do meet the substantial presence test in 2011.
If you play with the numbers a bit, you’ll see that if you spend more than four months (122 days) every year in the US, you will meet the substantial presence test after the third year and annually thereafter.
So, if this is your situation, you should make sure to seek some professional advice to understand your options more thoroughly. Briefly, however, you can
generally spend 182 days in the US every year without offending the US tax man by filing the Closer Connection Exception Statement for Aliens (US form 8840).
Basically if you vote, pay taxes, carry on a business and have your family and permanent residence located in Canada you will be deemed to have a “closer
connection” to Canada and will be exempt from paying US income taxes as long as you file the form every year prior to June 15th of the following year (the form for 2012 is due prior to June 15th of 2013). There may be some instances however where this will not exempt you from filing a US tax return which is why we recommend that you seek the professional advice of your tax advisor.
For those spending more than 183 days in the US this year, you cannot claim a closer connection exemption however you may be able to claim a tax treaty
exemption which is then filed with the US tax return that limits the amount of taxes you will owe.
The bottom line is that Snowbirds should likely be focusing on 122 days—not 183—if they want to avoid a lot of paperwork and professional fees.
Joseph Roberge, B.Comm. of Roberge Holtby Gibson Wealth Management is a Investment Advisor with RBC Dominion Securities in Kelowna.
The following articles are printed for informational purposes only, with the permission of the author, Joseph Roberge, RBC Dominion Securities Please consult and expert of your choice for advice.
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