After 20 years of writing books about Florida and the snowbird lifestyle, Dave Hunter decided to join the flock of Canadians who spend each winter in sunny climes south of the border.
Mr. Hunter and his wife, Kathy, bought a house five years ago in Lakeland, Fla., and now spend between three and five months a year – usually between November and April – at their American residence.
"We love it," says the 75-year-old Mr. Hunter, author of two Sunshine State travel books, Along I-75 – now in its 18th edition – and Along Florida's Expressways. "In the past, we would spend maybe three weeks in Florida on writing assignments, but in 2011 we officially became snowbirds."
The Hunters are in plenty of good company. Each year, more than one million Canadians aged 55 and older stay 31 days or longer in the United States, mostly in warm destinations such as Florida, Arizona and California. Many of these vacationers also own homes south of the border.
Besides remembering to pack their sunscreen and flip-flops, snowbirds should carefully plan for the financial aspect of their U.S. getaway. Perhaps the most important consideration for most snowbirds is ensuring that the length of their visits doesn't end up triggering a tax bill from the U.S. Internal Revenue Service (IRS).
"If you spend a certain amount of days in the U.S. and meet the 'substantial presence test', you may be considered to be a U.S. resident for U.S income tax purposes," says Linda Leung, director of U.S. tax planning at BMO Wealth Management. "You need to pay careful attention to this."
The number to watch out for is 183 days over three years. To determine if they might be scrutinized by the IRS, Canadian snowbirds need to look at the total number of days they spent south of the border in the current year, add the equivalent of one-third of the total U.S. days from the previous year and one-sixth of the total U.S. days from two years prior.
If the total adds up to 183 days or more, they will meet the "substantial presence test" but they can file a form – called Form 8840 – to claim a "closer connection" to Canada to avoid being considered as a U.S. resident for U.S. income tax purposes. This form asks questions such as where a principal home is located, whether any business was conducted in a location other than the applicant's tax home and where documents such as driver's licences and vehicle registrations were issued.
Snowbirds who decide to do what the Hunters did and buy a vacation home in the U.S. should talk to their tax adviser or accountant before purchasing their property, says Ms. Leung. This discussion should address issues such as how property ownership should be set up – for example, should the deed be under one person's name or the couple's names?
"How the property ownership is set up can affect U.S. estate taxes," explains Ms. Leung. "And if you sell your property and there's a gain, then as a Canadian resident, you have to report the transaction for both Canadian and US income tax purposes.
Some snowbirds rent out their American homes during the months they're not in the U.S. This rental income should also be reported on both sides of the border; a foreign tax credit, based on tax paid to the IRS, will be applied against tax owed to the Canada Revenue Agency.
David Bazar, a partner and chartered professional accountant with Bazar McBean LLP in Oakville, Ont., says some Canadian landlords who incur a loss from their rental property don't bother filing a tax return.
"This is a common mistake," he says. "If you have a loss, carry the loss forward until you have a profit, but you still have to file a return."
To protect and optimize their financial position, snowbirds need to be proactive with things such as out-of-country health insurance – don't assume your provincial health plan will pay for your hospital stay in Florida – and buying U.S. dollars. A good strategy for the latter is to set up a U.S. dollar account in Canada and stock up on greenbacks whenever the Canadian dollar goes up.
Some snowbirds like having a bank account in the U.S. Some banks make it easy, as the Hunters found out when they walked into a bank near their Florida property.
"We just went into the bank to inquire about the procedure for opening an account and we walked out with a chequing account, a debit card and an approved application for a credit card," says Mr. Hunter, who notes that these U.S. financial products have opened the door to memberships with big-bulk retailers, helping him and his wife to keep their food and gasoline costs down.
Other banks require a U.S. tax identification number, which Mr. Bazar says most Canadians won't qualify for. He recommends talking to your Canadian bank manager, who may be able to help set up a U.S. account.
It's also important to shop around when it comes to buying health insurance, says Mr. Hunter. But don't just compare rates; look at fine-print details such as deductible amounts.
"With some companies, the deductible can be $1,000 per claim," he notes.
Mr. Hunter has plenty of other cost-saving tips to share. For instance, buying a mobile phone plan from a U.S. company with a Canadian presence – such as AT&T, which has a Canadian partner – can make it possible to use one phone in both countries without incurring roaming charges.
He says it's also a good idea for snowbirds who drive to get a transponder, so they can save money on toll fees. There's usually a small upfront cost to get a transponder – in Florida, a SunPass transponder costs US$5 – but the savings over the long term are worth it, says Mr. Hunter.