Tax Alert: Increased Information Sharing at Border

Posted on May 26, 2014 by djb | Posted in Tax Tips

Frequent US travelers need to be aware!

With the completion of the final phase of the Entry/Exit Initiative of the Perimeter Security and Economic Competitiveness Action Plan the shared system between the Canada Border Service Agency (CBSA) and the U.S. Department of Homeland Security will be fully implemented.  This will enable each country to know exactly how many days a traveler (whether for business or pleasure) spent in the respective country. This change will be coming into effect on June 30, 2014.

The new system could trigger undesirable U.S. tax implications for frequent U.S. bound travelers if the individual meets the “substantial presence test”.  The test is met if an individual spends 31 days in the current year and also has spent 183 days over a period of 3 years (calculated as the number of days in the current year plus 1/3 of the days in the prior year plus 1/6 of the days in the second preceding year).  If the substantial presence test is met, the person will be considered a U.S. resident for U.S. tax purposes and may be required to file tax returns for federal and state purposes.

It is highly recommended that frequent U.S. bound travelers monitor the number of days spent in the U.S. and modify their travel patterns accordingly if they do not want to meet the
substantial presence test.  If the substantial presence test is met, a closer connection form could be filed with the IRS to minimize the tax implications. Frequent U.S. bound business travelers may face more scrutiny as U.S. immigration attempts to fully understand the purpose of their trips.  A work type visa might ease their entries into each country.

Contact your local DJB Tax Specialist to help assess how this initiative may affect you.

Article co-authored by: Jeremy Doan, MAcc, CPA, CA and Norma Sierra, CPA, CA