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Snowbirds: What you should know before heading south

French-Canadian snowbirds Pierrette Bolduc and Gisele Barbeau relax on Hollywood Beach in Florida last year

Every winter, many Canadians ditch the cold and ice and head south to enjoy the sunny skies, warm waters and lush golf courses found in places like Florida and Arizona. (Some estimates peg the number of Canucks who make the trip at up to 1.5 million per year.)

While relaxing on the beach sporting a Hawaiian shirt, sipping on a mojito can sure be relaxing, thinking about paying taxes, buying health insurance and trading currencies is anything but.

Terry Ritchie is a certified financial planner with Transition Financial Advisors specializing in Canadian residents making the transition to the U.S. Group, Inc. He is co-author of The Canadian in America, The Canadian Snowbird in America and The American in Canada, all published by ECW Press Canada.

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Terry recently appeared in three Let's Talk Investing videos with Rob Carrick, where he offered advice on exchanging currencies, choosing insurance and buying real estate in the United States.

Watch Terry Ritchie's Let's Talk Investing videos:

  1. Currency trading tips (video)
  2. Health insurance tips (video)
  3. Tips for buying U.S. real estate (video)

Terry Ritchie is currently the only Financial Advisor in North America to be Board Registered and Certified in Financial Planning in both Canada and the United States and to be enrolled to practice before the U.S. Internal Revenue Service (IRS) as an Enrolled Agent (EA). Terry is also a Trust and Estate Practitioner (TEP) affiliated with the Society of Trust and Estate Practitioners (STEP).

Terry has been practicing in the areas of financial, investment, tax and estate planning for over 20 years. With practices in Arizona for 13 years (1983 - 1995) and having practiced in Calgary, Alberta since 1996, Terry is uniquely qualified to deal with financial matters of Canadians and Americans in either country. He has consulted on behalf of individuals, major corporations, various legal and financial professionals and professional athletes on either side of the border.

Terry Ritchie took reader questions in a live discussion. Thanks to everyone who submitted them.

Read through the questions and answers below, or scroll down and click on the Cover It Live box to read through the discussion as it appeared during the live hour.

Jeremiah: I've been renting condos in Florida for the past couple of winters. Whenever I cross the border, I get asked whether I rent or own. Why do they need to know?

Terry Ritchie: The folks at the border can ask you a lot of various kinds of questions. You must answer all questions honestly. My sense is that they are trying to determine whether your intentions might be to live in the US on a longer term basis than allowed under US Immigration rules. If you are not a US citizen or hold a US green card, you are only entitled to be in the US for no longer than 6 months in a calendar year. In my book, I discuss the role of a "border binder". You might want to create such a binder to address these issues if they come up again.

Joe: Crossing the border, in regards to Jeremiah's question, border guards (US) are getting more detailed. What proof should we have that we do own US property?

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Terry Ritchie: You do not have to give them anything unless they ask. Ideally, you really want to support that you are a Canadian resident and will not be living in the US beyond your time restrictions under the B-2 Visa (Pleasure Visitor) that will be assigned to you. Obviously, if you want or need to support that you own property in the US, a copy of your title certificate would help. If you are renting the property and filing a US tax return (Form 1040NR) as required, that would be helpful as well.

Mike: Hi Terry. What are the tax consequences for purchasing a condo in Florida it will be 6 months rented and 6 months used for personal use?

Terry Ritchie: There are no US income tax issues upon the purchase of US real estate. US income tax implications come into play when you either rent or ultimately sell the property. If you are renting the property for 6 months, you will have to file IRS Form 1040NR along with Schedule E to include gross rents and the related expenses from the property. Under US rules, the property must also be depreciated (Straight Line basis over 27.5 years). As a Canadian resident, you should also report the rental activity on Form T776 of your T1. Since you will be using personally as well, you can only deduct expense related to the rental time period.

Mike: I am looking at purchasing a condo in Florida either in Miami or Clearwater areas. What are the tax consequences? I understand there is an additional property tax for foreign investors in the State of Florida?

Terry Ritchie: The level of property tax in Florida is far greater than those of other "snowbird" states. For those who own property in Florida, you are well aware of the increases in property taxes there. Florida has no state income tax, so property taxes are higher as a means to generate revenue. When these taxes were increased a number of years ago, the residents of Florida were up in arms! As a means to quell their "uprising", the State chose to impose the increases on the backs of business owners and non-residents of Florida (snowbirds).

Jsfinley: I am a US citizen, my husband is not.... are there tax/reporting implications for him if I buy a US property or for me if he buys a property?

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Terry Ritchie: As a US citizen, you are subject to tax on your worldwide income. Our book, The American in Canada deals with issues related to US citizens who live in Canada. What we often find is that many US citizens who live in Canada, discontinue filing US tax returns. This can pose a problem if you now look at acquiring US property for either rental or personal purposes, as you will ultimately show up on the IRS radar screen when you rent or ultimately sell the property. So are you filing US tax returns?

Jsfinley: Yes I am, although I don't like it.

Terry Ritchie: Good that you are filing US tax returns. If you are filing returns as a US citizen, generally it is preferable for the US citizen to own US property and file accordingly. There are obviously other planning considerations as well that we often explore for couples like yourselves.

Keith: We currently own a townhouse in San Diego and are considering selling it. The IRS (through an escrow company) will withhold 10% of the sell price to offset taxes. We know we have to fill out an application to reduce (hopefully eliminate) this withholding. My question is, what are the odds that the IRS will reduce the withhold given we have no income in the US?

Terry Ritchie: Under US tax rules (FIRPTA), a 10% withholding tax requirement exists if the gross proceeds upon the sale will exceed U$300,000. So if the proceeds do exceed that amount, the withholding tax rules apply. However, to the extent that your net capital gain tax is less than 10% of the gross proceeds or you have a capital loss, you can file IRS Form 8288B to request a reduction in the withholding tax commensurate with the net tax or if you have a loss, no withholding tax at all. You will be required to support your taxable position (net gain or loss) when you submit the 8288B. They'll want to see the closing papers on purchase and contract of sale to support these numbers. If the closing occurs prior to the IRS issuing the withholding certificate, the tax will be stuck with the escrow folks until the certificate is issued.

DL: What are the tax implications upon selling a US property?

Terry Ritchie: If you sell US real estate, you are required to file a US income tax return (Form 1040NR along with Schedule D) reporting your net capital gain or loss. Long term capital gain tax rates are presently 15% in the US. Your gain would be the difference between your initial purchase (plus improvements that you can support) and the sales price. If you have a net capital loss, you would still have to file a tax return as well. As mentioned above, you may have a withholding tax requirement Federally and if in California or Hawaii, in those states as well. As a Canadian tax resident, you would also be required to report the gain or loss (adjusted for Cdn$s) on your T1 as well. To the extent that you did indeed have a net tax in the US, you could apply this as a foreign tax credit on your Canadian tax return to reduce your perceived exposure to double tax.

Roger LeBlanc: Overall, is it better to buy your US money by watching its value as it fluctuates or on a monthly withdrawal plan, as available thru the Snowbird association?

Terry Ritchie: Watching the currency is fun isn't it? You can watch the currency right next to your crystal ball. Currency speculation is an awful hard game to play. Awful hard. Obviously, we recommend that folks shop around to get the best rates they can. Check with your bank (if you have a private banking relationship their rates can be decent), but for the general public, the banks are not as competitive as some of the discount exchange firms ( or through association type plans (Canadian Snowbird Association). If you know that you are going to need US dollars on a long-term basis, then have US dollars allocated towards that.

Guest: What is the smartest way to play the Canadian dollar with respect to converting to US currency for property ownership/maintenance in the US?

Terry Ritchie: See my currency comments above. It's a hard game to play. Some of the currency exchange folks can assist you with this using forward contracts and the like. But if you know that you are going to need US dollars for such a purchase, make hay while the sun is shining. Predicting the currency is a tough one. Last March .76. Today .94. Many senior economists believe that we should hit parity again this year. We got spoiled a few years ago. Course there are so many factors that dictate currency movement. We also have government intervention as well.

Nick: Can I get coverage from OHIP while away?

Leslie: My question relates to residency rules. What are the requirements to ensure that I am covered by OHIP if I spend time in the south?

Terry Ritchie: So long as you are a resident of Ontario you are covered under OHIP. However, your coverage is extremely limited for any medical risks that may occur in the US. Generally, OHIP will only cover costs up to C$400. You should make sure that purchase travel insurance prior to leaving Canada. Check with your bank, association plans or consult with your financial adviser to review a plan that can work best for you.

Alex: what are the requirements to ensure I am covered by BC Medical?

Terry Ritchie: See my OHIP comments above. So long as you are a resident of BC, you will be covered under MSP. However, you coverage will be limited for any costs incurred outside of Canada. You can check out for more information.

Jonathan: Terry, is there a state in the US that makes financial sense to invest in a rental property? Although Florida is a nice place to vacation, it does not sound like a place that will give you a good return, given the 'out of state' taxes one has to pay (plus don't forget the hurricane and wind insurance)?

Doug: 3 to 4 families are considering buying a house together for use and rental in Arizona. How do the property taxes in Arizona compare to Florida? Are there any other major differences from owning in Arizona to Florida?

Terry Ritchie: If you want water you go to Florida, if you don't you go to Arizona. Course, I'm in AZ today and last week, we had plenty of water! Our drought problem is now fixed. Head back to Calgary next week. Property taxes are far less in AZ than in Florida. See my comments above related to property taxes in Florida. Not only are property taxes higher in Florida, but so are property insurance costs as well (Hurricanes, etc.) There are lots of opportunities to purchase in both AZ and Florida. Question is really based on your lifestyles. Both are nice places. Where is it easier for you all to travel too? 3 hours by direct flight from Calgary to Phoenix works well for me. If you are in the eastern part of Canada, then Florida might be easier. Although there are direct flights daily from Toronto. In terms of having a number of family members involved, tax and estate planning is critical. Does everyone get along?

Greg Eby: Your gut feel, which state is currently, "best value" for vacation property?

Terry Ritchie: My wife is a Realtor in AZ and we have a home here, so I am a bit biased to Arizona. I've been living here on and off since 1979. I love Florida. I just don't know it as well. My suggestion, go down to Florida, kick the sand on the beach. Come to AZ and kick the desert rock.

Darren: I've been looking for properties in the Orlando area for the past few months. It seems that it is common for there to be all sorts of fees like HOA, Maintenance, taxes etc. added to the monthly carry costs. Do you have any tips on finding property that is HOA free?

Kurt: Terry, I have been looking at purchasing a condo in either Florida or Arizona. The HOA fees always concern me. With the number of foreclosures, is it possible that my actual HOA fees will increase if there are a large number of properties is under short sale or foreclosure?

Terry Ritchie: Good luck. The HOA fees are in place to cover the costs of maintenance of the community common area etc. It can be a big deal as a number of these communities might have less folks there (due to foreclosure, etc.) which then puts some of the HOA burden on the residents that are still in the community. You really have to be aware of this and find out what kind of increases have occurred and what might very well be expected. Good luck!

RS: My wife and I are considering the purchase of a condo in Miami. Based on estate taxes, would it be a good idea to put the title of the property under our 19 year old daughter.

Terry Ritchie: First off, as of today, right now, at this very moment, there are no US estate taxes. US Senate got too busy last month and failed to pass through legislation to deal with the extension of the U$3.5M exemption. It's a moving target as to what will occur and something that I have written about and am following closely. If you want an article that I have written on this, email me at and I can forward. I'm not a big fan of having kids involved in the ownership of your US property. I'm sure your daughter is a wonderful person. However, is she married, will she get married, is she mature enough. A number of factors needs to be understood before the ownership decision can be made. Check out my book in Chapter 5 for more details.

George: Are there any tax advantages in purchasing U.S. real estate under a Canadian corporation.

Terry Ritchie: it depends on the purpose of the property. If for personal use purposes, generally no. Under IRS rules, if you use it personally, they will look through it as if you owned it personally unless you pay rent to the company. Also the income tax rules are much more onerous as well. As opposed to a 15% LT Capital gain rate, you could pay as high as 39% depending on the sale amount.

Confidential B: I have two questions: (1) if one plans to become US resident for a couple/ few years, what are the implications of continuing to own investments in Canadian-domiciled investments funds which do/ may not separate short-term gains, from long-term gains or other income? (2) how onerous is FBAR compliance assuming numerous Canadian financial accounts would be kept open over this period of US tax residency? Thank you.

Terry Ritchie: If you become a US resident and continue to own Canadian mutual funds a number of factors come into play here. Will you be severing your Canadian tax ties? If so, then you would be deemed to have sold these for Canadian tax purposes. Also if your adviser in Canada is not licensed in the US, you can no longer maintain an investment relationship with him/her or the firm. Also as US resident, you will now need to be aware of the US tax compliance issues with respect to holding Canadian mutual funds. If they are trust or corporate units, a bunch of nasty IRS compliance crap can come about. The FBAR stuff, like the T1135 issues we have in Canada have been around for some time. Its just that with the whole UBS/US citizen issue of last year, most folks are more aware of the FBAR requirements and the US Treasury is in my opinion more on top of these things. If you are a US resident and maintain any Canadian or foreign accounts, you will have to file US TDF 90-22.1 each year with your US Form 1040. Failure to file could result in penalties.

Jonathan: Terry, I want to get your thoughts on buying property in the US for purely investment sake. If one does not really care for it being a residential or business, which one will give you more return once all the taxes are taken out?

Terry Ritchie: Depends on obviously how much it appreciates over the period that you are holding it. The tax rate upon sale (Canada and US) and the Canadian dollar amount on purchase and sale. Obviously, many people now believe it is a good time to buy US real estate given where the dollar is and where US property values are.

Mike (B.C. snowbird): I am having trouble getting car insurance in Florida. If I buy a car in Florida I cannot get insurance for the Florida car from ICBC. If a go to an American car insurer they will give me very basic insurance as I do not have any insurance records within the United States. Any suggestions?

Terry Ritchie: If you are not a US resident or resident of Florida, I don't believe that you would be entitled to qualify for insurance in the State.

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