Closer Connection US Form 8840-For Canadians in the USA over 183 DAYS over 3 years

If you are a Canadian and even if you do NOT have any US income, but have spent over 183 days in the USA when you count the current year 2023, 1/3 of days in 2022 and 1/6 of days in 2021, and if you spent less than 183 days in the current year, then file US Form 8840 to avoid being taxed by the IRS on your world-wide income.

This Form will determine where an individual’s main personal and business activities take place.  The IRS will determine this by considering the following factors included on the Form:

• Where the individual has a permanent home and keeps their personal belongings
• Where the individual’s family lives
• Where the individual’s bank and investment accounts are located
• Where the individual’s principal income earning activities take place
• Where the individual’s driver’s licence in held
• Where the individual’s social, political, cultural or religious activity takes place
• Where the individual is registered to vote
• The country the individual lists as his residence when completing official documents
• The country the individual is covered by a health plan

If the Canadian taxpayer meets the Closer Connection exception to the Physical Presence Test, then this must be filed with the IRS by June 15th each year to establish the claim to non-US residency by virtue of the exceptions.

My advice would be to have this Form filed annually if you are in the USA for 183 days or more over the three years average, as discussed above.  You are not on the IRS’ hot list if you file this Form.  However, you do not want to receive a letter that you did not file US tax returns or other banking and information returns because of your deemed presence in the USA.  Filing Form 8840 will eliminate this risk. 

If you have annual worldwide taxable supplies of $400,000 or less, including the GST/HST and zero-rated supplies, then you can file an election to use the QUICK METHOD for GST/HST (provided you are not under the “exception” category: e.g., legal, financial, tax and accounting businesses).

You must still invoice the 5% GST or your provincial HST rate (Ontario would be 13%). You do not need to track your GST/HST input tax credits (ITCs) for most purchases/expenses because you remit based on a set remittance tax rate. You only track ITCs paid on capital asset purchases.  The remittance rate varies depending if you are a business that provides services OR a business that purchases goods for resale.

In Ontario, the remittance rate for a service business is 8.8% of total sales (that includes HST).  There is also a 1% credit that can be claimed on the total sales.  The maximum credit that can be claimed in a fiscal year is $300 (or 1% on first $30,000 of sales).  You can also claim ITCs that you paid on purchase of business capital assets such as real estate, office furniture, office equipment, computers, software, vehicles, leasehold improvements, etc.

The above information is of a general nature only and should not be relied upon for specific situations.  Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.