Dale Jackson

Personal Finance Columnist, Payback Time

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ANALYSIS: Canada’s Privacy Commissioner is reportedly throwing cold water on the increasingly cozy relationship between the Canada Revenue Agency and the U.S. Internal Revenue Service.

A 2014 information sharing agreement between Canada and the U.S. is coming under scrutiny from Canada’s privacy watchdog as tax authorities on both sides attempt to plug potential revenue holes.

The deal could have a profound impact on the thousands of Canadian snowbirds seeking warmer climates in their retirement.

The agreement attempts to determine which side of the border they fall on for tax purposes through a “substantial presence” formula put forward for the IRS.

The magic number is 183 days. If snowbirds spend more than 183 day in the U.S., they could be forced to pay taxes.

But, as with many things tax related, it’s not that simple. The 183 rule goes back two years from the current tax year. Each day in the current year counts as one day. Each day in the prior year counts as one-third of a day, and each day two years before counts as one-sixth of a day.

If they add up to over 183 days, the snowbird is considered a substantial presence in the U.S.

If you are a substantial presence, but maintain you have a closer connection with Canada and should not be taxed as an American, you would be required to complete a “Closer Connection Exemption Statement” (IRS 8840 form).

Here is the type of information you would be required to disclose to the U.S. government:

- Location of permanent home

- Family members

- Personal belongings

- Social, political, cultural or religious affiliations

- Business activities.

- Driver's licence.

- Where you vote.

If the agreement takes effect the consequences for snowbirds who don’t comply could be severe, including loss of health care coverage in your home province, taxes on both sides of the border and even being declared an illegal alien.