Tax-dodging snowbirds could lose their healthcare
Are you an American resident? It’s a question that Canadian “snowbirds” will have to ask themselves before celebrating Canada Day next week, when the U.S. Foreign Tax Compliance Act – or FATCA – kicks into effect.
Financial institutions around the world will answer to the U.S. Internal Revenue Agency so Uncle Sam can assess their account holders for income tax, or face large withholding penalties after July 1.
Unlike Canada, and most of the world for that matter, Americans are taxed wherever they choose to reside. The convention dates back to the first U.S. income tax enacted in 1861 in the early months of the Civil War, aimed at preventing wealthy Americans from heading for the safety of foreign shores. It’s a tax distinction the U.S. shares exclusively with war-torn Eritrea.
“They [Americans living abroad] are required to file their income tax every year and pay their income tax, but really they haven’t. We are in a new age of tax collection where governments collaborate with each other to share information,” said BNN’s Personal Investor Dale Jackson.
Quirky history lessons aside, this new legislation puts Canada’s “snowbirds” – the masses of Canadians that flock south of the boarder for the winter months – directly in the cross-hairs of a newly empowered U.S. tax man.
More than 77,000 financial institutions worldwide have agreed to pass along account information to the IRS. Canadian institutions will do this through the Canada Revenue Agency.
FATCA applies to “U.S. persons,” a definition that includes people who reside in the U.S. but may not be lawful residents or citizens.
COUNT THE DAYS
So how long were you soaking up sun on St. Petersburg beach while waiting out the Polar Vortex this year?
“Snowbirds are required to keep tabs on the days that they are in the U.S. and in Canada to determine which residence they are. That’s the entry/exit initiative that requires the substantial presence test. The magic number is 183 days. That could determine if you are a U.S. citizen or a Canadian citizen,” said Jackson.
The consequences for not settling up your tab with Uncle Sam are serious and could include a Canadian departure tax, a travel ban to the U.S., or U.S. tax and worldwide income.
“If the Canadian government determines you are not a Canadian citizen, you could lose your provincial health care, which would be something very serious for Snowbirds,” said Jackson.