When reading the Toronto Star recently, we came across this article by Gordon Pape:

Why you should think twice about buying in Florida: Pape

One point made by the article author indicates that estate planning is a concern when owning real estate in the United States, and that "it's a good idea to get advice from a specialist in cross-border taxation before proceeding."

We showed the article to our very own Frank Casciaro, Fuller Landau's Senior Tax Manager with a specialty in cross-border taxation, to get his take on Gordon Pape's comments.

Frank told us:

Further to the author's comments, the U.S. estate tax return must be filed if a Canadian dies with American assets worth more than $60,000. However, if worldwide assets are less than $5.43 million, your estate will likely not have to pay any estate tax.

What the author does not elaborate on is if you are a U.S. citizen or U.S. resident and you're subject to estate tax, you get the full $5.43 million exemption. But for a Canadian living in Canada and owning a vacation home in the United States, you do not get the full $5.43 million exemption; you get a prorated amount.

The IRS looks at the value of your U.S. property, say your Florida condo, over the value of your worldwide estate. And that proration is what is applied against the exemption. Therefore, depending on the value of your U.S. property and your worldwide estate, , you might still be subject to the U.S. Estate Tax.

Length of Stay Restrictions

One of the other challenges to spending time enjoying your U.S. vacation home is time or length of stay restrictions. You are not supposed to spend 183 days or more a year in the U.S., or else you can be considered a resident in that country for tax purposes. But it's not that straightforward either. The IRS has a complex formula to total the number of days you have been in the U.S., spread over three years.

If you have 183 days or more in a current year, you could be considered a resident of the U.S. under their own domestic rules. If you're less than 183 days in a current year but have or are over 183 days over a three year period, then they use the "Substantial Presence Test"  to determine if you are a U.S. tax resident. The test is based on the following formula: the current year's number of days in the U.S. + 1/3 of the last year's days + 1/6 of the days from the year before that. If with that formula you are 183 days or over, then you are still considered a resident of the U.S.

If you are a Canadian who spends a fair amount of time in the United States, or owns property in the U.S., it is worthwhile to speak to a cross-border specialist to ensure that you are compliant with the IRS from a reporting requirement. You want to be sure you take the necessary steps so the IRS does not come knocking on your door unexpectedly.

Regardless if you are spending a fair amount of time in the U.S. on vacation (owning property is incidental), you are going to school in the U.S. or you are working there for any length of time, you must file something with the IRS whether it's a tax return, a disclosure form or a treaty exemption. The IRS loves paperwork.

Frank has written about the day count rules in more detail in his blog U.S. Tax Implications for Canadians Travelling to the US including Snowbirds and Students.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.