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In future, Robin will need to carefully monitor her time in the U.S. to keep it under 183 days. The rolling formula makes this difficult. “Even a day trip across the border to a casino counts,” says Ulmonen.

Client Acceptance: 6/10

Robin was unhappy that her advisor had not educated her better about U.S. taxation law. She has since hired a U.S. tax specialist who is working to rectify the situation. Robin is carefully monitoring her time in the U.S. to ensure it remains under 183 days.

Advisor degree of difficulty 9/10.

Because of Robin’s American-sourced income, an advisor will need to work with an expert who specializes in U.S. taxation issues. These experts are in demand and hard to locate. Since the tax deadline in the U.S. is April 15, time is not on the client’s side.

Important U.S. tax information

Anyone who’s not a legal permanent U.S. resident, yet is in the country more than 183 days, is considered a resident alien for taxation purposes and is required to file income tax with the IRS.

There’s another rule that could catch the unwary who can be deemed residents if they meet the substantial-presence test. This test calculates residency based on:

  1. 31 days during the current year; and
  2. 183 days during the three-year period that includes the current year and the two years immediately before that, counting:
    • All the days someone was present in the current year, and
    • 1/3 of the days someone was present in the first year before the current year, and
    • 1/6 of the days someone was present in the second year before the current year.

Common U.S. tax forms

Canadian residents who consult for companies in the U.S. should expect their accounting departments to request these tax forms:

  • W-9: Form used by U.S. residents to exempt tax withholding. It does not apply to non-residents. Instead, non-residents should use Form 8233 to request exemption from withholding U.S. income due to Treaty tiebreaker provisions.
  • Form 8833: Form used to claim a Treaty tiebreak. When Canadian residents have residential ties to both the U.S. and Canada, they can claim a “treaty-return position” showing their personal and economic relations are closer to Canada. The form must be filed along with a 1040NR.
  • 1040NR: Tax form used by U.S. non-residents to report U.S.-sourced income and expenses. Equivalent to the Canadian T-1 General.
  • Form 8840: Form to exempt non-residents who meet substantial-presence test from the deemed residency rule. Can be filed separately from Form 1040NR.

Source: U.S. Internal Revenue Service

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Originally published in Advisor's Edge

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