Few people realize that a Canadian resident, who is not a U.S. Citizen or green card holder, having no U.S. sourced income, can still be subject to U.S. taxation on their worldwide income if they are deemed to be a resident alien of the U.S. because they had a substantial presence in the U.S. during the year.
The IRS determines “Substantial Presence” based on a calculation of the number of days physically present in the U.S. over a three-year period. For 2013 for instance, two tests must be met:
- Individual was present for at least 31 days in 2013; and
- The individual was present in the U.S. for at least 183 days during the past three years.
The second test is met by calculating all the days present in the U.S. during 2013; one-third of the days present in the U.S. in 2012; and one-sixth of the days present in the U.S. in 2011.
If an individual finds they have met these tests, they will be considered a U.S. resident and will be subject to income tax on their worldwide income. However, before you get out your chequebook and send payment to Uncle Sam, there may be options available to alleviate your filing obligation.