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Bob and Diane Croteau’s plans to return to Alberta in April from Arizona were thrown into disarray last week, when Canada unveiled tough new quarantine rules for international travellers.

“We are all pretty nervous down here,” Mr. Croteau, a 71-year-old Calgary restaurateur, said in a phone interview on his way to a golf course near the home he’s owned for 11 years in Surprise, Ariz. “It is too soon for us to panic yet, but we don’t know how long this situation is going to last.”

Flying home will soon mean a mandatory COVID-19 test and quarantining in a government-approved hotel for three days at the traveller’s own expense, a cost Ottawa has pegged at roughly $2,000 a person. The Public Health Agency of Canada told The Globe and Mail by e-mail Thursday it plans to “provide further details in the coming days” on the exact timing.

Meanwhile, the steep price tag has pushed the Croteaus, along with tens of thousands of other Canadian snowbirds, to consider extending their stay in warmer climates in hopes of waiting until the rules are lifted.

Doing so may seem like the path of least resistance, but experts warn that choice could bring with it costly health-insurance consequences. Although the risks and rules apply to all overseas Canadians, those spending the winter in the United States could quite literally overstay their welcome and face a U.S. tax bill.

David Altro, managing partner of Altro LLP, which specializes in Canada-U.S. cross-border issues, said his firm has been getting many “frantic calls from our clients in the U.S. worrying about all sorts of issues.”

Many of those concerns focus on health insurance, since most snowbirds purchase travel insurance coverage for only the specific period of time they plan to be abroad. Mr. Croteau’s policy, for example, only covers him in the U.S. for 60 days at a time.

“Every year we come down right after Thanksgiving and then we always transition back to Canada during the Christmas season to visit our kids … but this year we didn’t go back because of the lockdowns,” he said, noting that extending his policy to cover the overlap cost him $750.

If he decides to stay in Arizona beyond April, Mr. Croteau said the extra insurance will cost as much as $20 a day, a substantial price tag.

Extending travel health insurance should not be difficult, assuming the snowbirds in question haven’t made a recent claim or already allowed their coverage to lapse, said Joan Weir, director of health and disability policy at the Canadian Life and Health Insurance Association.

“If you have had a claim, let’s say for some reason you had some emergency treatment, then probably your insurance will not be extended,” she said. “Also, if you maybe forgot to extend your coverage and it lapses, it is much more difficult to get your insurance back.”

Snowbirds must also ensure they stick with the same provider for their extensions, Ms. Weir said, as insurance companies are typically unwilling to top up policies from other providers.

There is also a substantial risk from staying abroad too long. Ms. Weir said all Canadian travel health insurance policies are contingent on the policyholder still qualifying for medical coverage in Canada. Yet most provinces require their residents to spend roughly half of the year physically within their borders in order to remain eligible.

In Ontario, for example, it is 212 days “and [snowbirds] cannot extend their coverage beyond that,” Ms. Weir said. “It is a requirement.”

Staying in the U.S. for more than 182 days would also potentially lead to major tax headaches for snowbirds, as American law applies what is known as the “substantial presence test” to determine whether someone should be subject to U.S. taxes.

“If you are determined to be a resident of the United States for tax purposes, then you’re going to be taxed on your worldwide income and you would also have to make all the necessary disclosure requirements,” said Warren Dueck, a partner with Andersen Tax LLP, which specializes in cross-border tax issues.

Brian Wruk, founder of Transition Financial Advisors Group Inc. in Phoenix, said snowbirds who find themselves in that situation would need to file IRS Form 8840.

“That is a closer connections form that asserts even though you have met the substantial presence test down here, that you have closer tax ties to Canada and will be paying taxes up there,” he said. “And I would expect the IRS to show some leniency there.”

While that form should help snowbirds avoid being double-billed for their taxes, Mr. Dueck warned that the filing requirements and professional costs associated with these disclosures can be significant.

“They are substantial in terms of their complexity and their requirements, and the penalties for failing to do it are US$10,000 per failure, which can be really significant.”

“The U.S. has a huge lineup of penalties that they can assess on people who fail to make disclosures,” Mr. Dueck said.

The longer the uncertainty drags on, the more risks snowbirds will face.

“What happens if somebody gets sick down there and they need to sell their winter home or other assets?” said Trent Hamans, managing director of wealth transfer at ATB Wealth in Edmonton. “Because oftentimes documentation such as powers of attorney, from Alberta for example, are not recognized in other jurisdictions. The longer that this [pandemic] gets protracted, the greater the risk is in terms of people’s plans to deal with not just their personal care but their financial situation as well.”

As for the Croteaus, they are holding off on making any decisions until early April when they hope to have more clarity on the rules, but ultimately, they would rather return home and deal with Canada’s new quarantine rules than risk staying away for too long.

“That is when I’m going to start to worry about what we are going to do,” Mr. Croteau said.

Editor’s note: The maximum number of days an Ontario resident can spend abroad without losing OHIP coverage is 212. An earlier version of this story said the maximum was 182 days.

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