A few years ago, Terry Ritchie, a certified financial planner and partner with Transition Financial Advisors Group Inc., based in Phoenix and Calgary, banged his head on the hatchback of his car while in the U.S. After a three-hour visit to a hospital emergency room for stitches and a few tests, he was left with a bill for US$3,000, which had to be paid up front. Fortunately, Ritchie had health insurance.

It is likely that more than a few of your clients are snowbirds, and health coverage is just one of the many issues they need to consider. Here are some others:

> Border Crossings. Effective this month, all Canadians crossing into the U.S. will need a valid passport. Some provinces are issuing enhanced driver’s licences or identification cards that will be acceptable documents to show at the border — but only when entering the U.S. by land or water; not by air.

Canadians who make frequent trips across the border might consider applying for a Nexus card, which effectively allows the holder to bypass the border official. Anyone can apply, but the approval process is lengthy, and cardholders must carefully follow the rules governing their cards’ use. For example, Nexus cardholders can use special dedicated car lanes at most border crossings, but each passenger in the vehicle must hold a Nexus card.

The trend in both Canada and the U.S. is toward more electronic tracking of people who cross the border back and forth and the lengths of their stays.

“Electronic tracking will compromise a snowbird’s ability to bend the rules on the number of days they stay in the U.S., as they might have in the past,” says Ritchie, who is co-author of The Canadian Snowbird in America (ECW Press, 2007).

Most Canadians who enter the U.S. are issued a B-2 visa, which allows the visitor to be in the U.S. for a total of 183 days in a calendar year. Under that visa, the visitor can’t work in the U.S., and must retain primary residency in another country.

> Taxes. A snowbird who spends many months each year in the U.S. may meet the U.S. Internal Revenue Service’s “substantial presence test” and be considered a U.S. resident for tax purposes. To determine whether a client meets that test, add the number of days he or she is present in the U.S. in the current year to one-third of the number of days in the previous year and one-sixth of the days in the year before that.

If the total is more than 183 days, and if the snowbird has spent at least 31 days in the U.S. in the current year, he or she will be considered a U.S. resident for tax purposes and will have to file a U.S. tax return.

Snowbirds who meet the SPT but want to avoid being considered a U.S. tax resident have the option of annually filing IRS Form 8840 to apply for a “closer connection” exemption. That form allows the Canadian snowbird to declare that he or she has a primary tax and residency connection to Canada, indicated by things such as a primary home and a bank account in Canada.

Snowbirds who wish to avoid being considered U.S. tax residents may also apply to the treaty governing tax relations between the U.S. and Canada, which includes provisions to protect individuals from being considered tax residents of both countries. However, experts suggest that filing IRS Form 8840 is preferable to relying on the treaty.

“Application of the treaty is more of a grey area,” says Tannis Dawson, a senior specialist in the tax and estate planning department of Investors Group Inc. in Winnipeg.

Contrary to popular belief, Canadians who buy property in the U.S. do not automatically become U.S. residents for tax purposes. However, renting out that property or selling it for a gain or a loss will compel a U.S. income tax filing.

If a snowbird client is making income from a U.S. property, or from selling it, he or she will have to apply for an individual taxpayer identification number. The ITIN is obtained through the filing of IRS Form W-7, which is usually attached to a tax return in the following year.

However, if rental income is being derived in the year of purchase, a request for an ITIN can be filed earlier so as to avoid a withholding tax of 30% on the gross income. The W-7 request must be certified by a certified acceptance agent or a U.S. consulate. Recently, the processing of ITINs by the IRS has bogged down and become lengthy, Ritchie says, partly because of the number of properties being purchased by non-U.S. citizens.

@page_break@“You have to be patient,” Ritchie says. “I’ve had people upset about the delay in getting an ITIN, fearing they’re going to be deported or something. You’re not going to be.”

Another misconception is that Canadians can deduct the interest paid from their U.S. mortgage, as U.S. citizens do. They can’t, unless they are renting out their property.

And Canadians who donate to U.S. charities while south of the border can claim any tax deduction only against U.S.-source income on their Canadian tax return, not against Canadian-source income.

> Banking. A few Canadian banks have U.S. subsidiaries and can offer their Canadian clients services while they’re in the U.S. A relatively recent change now prevents Canadians from writing cheques based on their U.S.-dollar accounts registered in Canada.

Canadians in the U.S. can open an account with a U.S. bank, but will have to fill out a W-8BEN, a form that confirms that the accountholder is a non-resident. Interest earned in a U.S. bank account must be declared on a Canadian tax return.

A balance of more than $100,000 in a U.S. bank account must be declared to the Canada Revenue Agency on Form T1135.

> Health Coverage. Provincial health systems often cover only a small amount of expenses incurred out of country. Ritchie’s minor accident cost US$3,000; a serious injury or illness could run into six figures.

Canadian snowbird clients should take stock of the health coverage they may already have through a workplace provider and through their provincial health-care system, and buy additional insurance to cover any potential shortfalls. IE