When it comes to Canadians’ need to understand their tax obligations in the U.S., it’s not only snowbirds who must take this seriously, suggests a recently published white paper by Toronto-based Royal Bank of Canada’s wealth-management arm.
The white paper, entitled U.S. Tax Exposure: Broader Than You Can Imagine, defines the various ways an individual can find him- or herself beholden to the U.S. tax system.
“Living in Canada, bordering the U.S., is like living next to an elephant. Its shadow is long and wide, and can easily impact on our daily lives,” the paper’s introduction states. “The U.S. tax system extends in directions that many living in Canada would be surprised to learn of.”
For example, a Canadian citizen living in Canada might be surprised to learn that he or she might also be a U.S. citizen, and may owe taxes in the U.S., if his or her natural parents are Americans who are married to each other and at least one parent had lived in the U.S. at some point.
An individual who lives in Canada but holds a U.S. green card may also be required to pay taxes in the U.S., even if that green card has been allowed to expire.
In addition, the research paper also explains the “substantial presence test” calculation that determines whether snowbirds and other individuals have spent the required number of days in the U.S. over the course of a defined period and, therefore, can be considered residents of the U.S. for income tax purposes.
The white paper can be found at www.rbcwealthmanagement.com/approach/.