Key Cross-Border Points for Canadians to Consider at this Time
Things are changing every day in the wake of COVID-19. Unanticipated consequences have begun to cause a fury of questions and unknowns. The below aims to address both the immigration and tax concerns as it relates to those with assets and ties to Canada and the US to help ease the stress of the uncertain future.
Immigration Status and Laws
Do Canadians feeling ‘trapped” in the United States have to worry about losing their legal status in the US and becoming an “overstayer”? While a multitude of factors may be considered when deciding whether to travel, one factor travelers should consider is the validity of their visitor status. The government is unlikely to focus on overstays in the immediate future due to the current worldwide circumstances, however, every effort to remain compliant is still expected of all non-US Citizens. Any overstays may come to light in the future when Canadians try to travel. Alternatively, if Canadians decide to stay in the US the option to extend their visitor status through a paper application is available to them in order to remain compliant. An inland extension is also available to all Canadian’s working or studying in the US who do not have the option, financially or otherwise, to return to Canada.
Can I get Back to Canada?
Those that decide to come home will continue to have the right to enter Canada assuming they are not symptomatic and are able to secure a flight or vehicle to cross the border. Those holding a Canadian passport have an absolute right to enter Canada. However, if you are showing symptoms, airlines are not required to allow you on the flight. Land crossings will allow Canadians to cross, even with flu-like symptoms, however CBSA will provide instructions, and in some instances, a location in which you must self-isolate for a minimum of 14 days.
If I Stay in the US, What are the Tax Implications?
Both Canada and the US measure the amount of time an individual stays in the country to help determine whether that individual is obligated to file tax returns and/or pay taxes for a given year. For example, as a broad rule, the US will treat any individual as a “US resident” for income tax purposes if that individual spends 183 days in the United States during a calendar year. Any part of the day counts as the entire day, so arriving at 11:30 p.m. on a late flight will cause that day to be included.
Two important exceptions to this rule will help Canadians “trapped” in the US manage this situation.
The first exception is available under the Canada/US Income Tax Treaty, which allows a taxpayer to “tie-break” back to their country of [real] residence based on “all the facts and circumstances.” This allows a less rigid analysis and determination than the mere counting of calendar days. It seems reasonable to conclude that a Canadian whose travel was clearly disrupted by COVID-19 and ended up spending more than 183 days in a vacation/snowbird setting could still “tie-break” back to Canada based on other factors (such as a permanent home, employment, family connections, or other ties to Canada).
The second exception is a rule arising under the US Code and Regulations, which excludes from the 183 day count any day which is after the individual’s original intended departure from the US and for which the individual is “unable to leave the United States because of a medical condition or medical problem that arose while the individual was present in the United States.” Until recently, most people reading that language would have intuitively interpreted it as applying to an individual who developed a medical condition while travelling in the US, and the example given in the Regulations reflects that view. However, the plain meaning of the term “medical condition” should apply to a mass medical emergency precluding international travel. We are probably fortunate that the IRS has not previously had the opportunity to publish guidance on how the provision applies to international pandemics. Nevertheless, given the lack of guidance on the topic Canadians will be glad to know that the treaty tie-breaking provision is also available.
For information about the differences between these two available exceptions, contact our Field Law Tax Team.
With tax season around the corner, there has been some uncertainty regarding whether governments will defer tax deadlines for the 2019 taxation year.
The Prime Minister of Canada announced on March 18 that individual tax return deadlines will be deferred to June 1, 2020. Similarly, certain trusts with a year end of December 31, 2019, will have tax deadlines deferred to May 1, 2020. Canada Revenue Agency (CRA) will allow taxpayers to defer the payment of any income tax amounts owing between March 18, 2020 and September 2020 until after August 31, 2020.
On March 17, 2020, the US Treasury Secretary Steven Mnuchin announced that US taxpayers are still expected to file their federal returns on April 15, 2020. However, payments to Internal Revenue Service (IRS) of $1,000,000 for individuals, and $10,000,000 for corporations, may be deferred for 90 days interest and penalty free.
Many states are following the guidance of the IRS, but some states, such as California and Connecticut, have deferred state tax filings to June 15, 2020.
Things will not be getting better overnight, but it is imperative that you stay calm and proactive. Field Law is equipped with a number of cross border legal professionals that would be happy to address any concerns or issues you may have.