Snowbirds and U.S. Tax – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Every year, hundreds of thousands of Canadians—known as snowbirds—spend the winter months in the United States. While escaping the cold is easy, navigating U.S. tax rules is not. Many snowbirds unknowingly trigger U.S. tax residency, face unexpected IRS filing obligations, or become subject to U.S. estate tax on death. Others fail to file the proper exemption forms and later receive IRS penalties. Understanding the U.S. Substantial Presence Test, the Closer Connection Exception, and the Canada–U.S. Tax Treaty is essential for any Canadian who spends significant time in the U.S., whether for vacation, work, or retirement.

Legal and Regulatory Framework

U.S. tax residency rules are governed by the Internal Revenue Code (IRC). Under U.S. law, you may become a U.S. tax resident if you meet the Substantial Presence Test (SPT)—even if you live permanently in Canada. U.S. tax residents must file Form 1040 and report worldwide income, similar to Canadian rules. To avoid this, snowbirds must file IRS Form 8840 (Closer Connection Exception) or, in some cases, Form 8833 (Treaty Tie-Breaker). The Canada–U.S. Tax Treaty protects Canadians from double taxation, but only if the proper forms are filed.

Key Court Decisions

In Hughes v. United States, the court reinforced strict adherence to the Substantial Presence Test, showing that failure to file Form 8840 eliminates treaty protection. In Dewees v. United States, penalties were upheld due to non-filing of required U.S. forms, highlighting the IRS’s broad enforcement reach. In Nielsen v. Commissioner, the court emphasized that tax residency depends on actual days spent in the U.S., not personal intention. These decisions stress the importance of filing required U.S. forms correctly and on time.

The Substantial Presence Test (SPT)

You may be considered a U.S. resident for tax purposes if:

• You were in the U.S. 31 days in the current year, and

• Your total days in the U.S. over 3 years equals 183 days using the formula:
  All days this year + 1/3 of days last year + 1/6 of days two years ago ≥ 183
  Even short vacations and shopping trips count. Snowbirds often meet this threshold unintentionally.

The Closer Connection Exception – Form 8840

If you exceed SPT but have a closer connection to Canada, you can file Form 8840 to avoid being treated as a U.S. tax resident. You must show that your primary: home, family, bank accounts, driver’s license, health care, voting ties, and economic ties remain in Canada. Form 8840 must be filed annually by June 15, and failure to file means you cannot claim the exemption—even if you clearly live in Canada.

Treaty Tie-Breaker Rules – Form 8833

If you cannot use Form 8840 (e.g., you stayed too long in the U.S.), you may still avoid U.S. residency using the Canada–U.S. Tax Treaty and the tie-breaker rules:

• Permanent home

• Centre of vital interests

• Habitual abode

• Citizenship

• Mutual agreement procedure
  Form 8833 must be filed with a U.S. tax return (Form 1040-NR). Failure to file can result in IRS penalties.

U.S. Estate Tax Exposure

Many snowbirds do not realize that owning U.S. assets—such as real estate, stocks, or significant property—may expose them to U.S. estate tax. The U.S. estate tax exemption is currently very high, but subject to change, and applies differently to non-U.S. citizens. Canadians may face estate tax if they own:

• U.S. real estate

• U.S. stocks or ETFs

• U.S. business interests
  The Canada–U.S. Treaty provides a prorated exemption, but planning is essential.

State Tax Issues

Some U.S. states (Arizona, Florida, Texas) do not levy income tax. Others (New York, California, Massachusetts) have strict rules and may require a state tax return if you spend significant time or earn income there. State tax residency rules differ from federal rules, increasing complexity.

Common Mistakes Snowbirds Make

Snowbirds frequently: overstay U.S. day limits, fail to track days, assume they don’t need U.S. filings because they “didn’t work,” forget to file Form 8840, misunderstand visa rules, fail to plan for U.S. estate tax exposure, incorrectly report Canadian pensions on a U.S. return, or trigger tax residency accidentally by spending too much time in the U.S.

Record-Keeping Requirements

Snowbirds should track days using: passport stamps, travel itineraries, flight records, border crossing logs, and digital tracking tools. CRA and IRS can request proof of physical presence.

Mackisen Strategy

At Mackisen CPA Montreal, we help snowbirds stay compliant while minimizing cross-border tax exposure. We calculate Substantial Presence Test totals, prepare Form 8840 or 8833, file U.S. returns when required, advise on U.S. estate tax planning, coordinate Treaty protection, analyze pension reporting, and protect clients during CRA and IRS reviews. Our integrated cross-border tax expertise ensures snowbirds remain safe and tax-efficient.

Real Client Experience

A Montreal snowbird exceeded the SPT and risked full U.S. taxation; we filed Form 8840 and preserved Canadian residency. A couple with Arizona property avoided U.S. estate tax through restructuring. A retiree living six months in Florida each winter avoided U.S. tax residency through Treaty tie-breaker rules. A client facing IRS penalties for missing Form 8840 resolved the issue with our intervention.

Common Questions

If I stay under 183 days, am I safe? Not always—SPT uses a 3-year formula. Do days in transit count? Yes. Do I need a U.S. tax return if using Form 8840? No—only Form 8840 is required. Can CRA see my U.S. stay records? Yes—through data-sharing agreements.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures snowbirds remain fully compliant with U.S. and Canadian tax rules. We protect you from unexpected IRS filings, double taxation, and costly mistakes so you can enjoy your winters stress-free.