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Canadian Senior Sun & Surf Headaches: US Condo Ownership & Other Snowbird Minefields**
Gold’s Legal Minute*GLM*
By Allan Gold, lawyer Montreal and elder law attorney
Vol. 14, #11 – December 31, 2023
OPENING
In Canada and northern US, lower temperatures are common wintertime. Specifically, they dip to their annual minimums in December, January and February. Thermometers log really cold temps when a polar vortex sets in. It could be biting with the wind chill factor. One and all might say, “Baby It’s Cold Outside!” Just like geese, many graying Canadians fly south. They’re seeking several carefree winter months in the Sun Belt. That’s the southern tier of the United States, comprising: Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, New Mexico, Arizona. As a lawyer Montreal and elder law attorney, I say, “Wintering south raises a number of legal issues. Whether or not it turns into a journey through pure hell depends upon what the snowbird did or don’t do.” Want some examples? I have a few doozies: • Being subject to U.S. income tax; • Hit with 30% withholding tax; • Receiving notice of denial of travel insurance claim; • Becoming ineligible for provincial health insurance; • Losing property rights on death in co-owned condo. Want to know more? Stay tuned and I’ll elaborate.
US TAX ISSUES FACED BY CANADIANS
Days Spent in US/ IRS form 8840 (Closer Connection Exemption Statement for Aliens)
FIRST – there’s something called the “IRS Substantial Presence Test.” Foreigners such as Canadians would be considered US residents for US federal income tax purposes. This happens if and when they’re physically present in the United States for: • At least 31 days in the current tax year, AND • More than 182 days during a three-year period; including the current tax year and the two years preceding it. (The US Internal Revenue Service (IRS) has a formula used to determine if the 182-day threshold is met.)
The taxpayer must combine: • Total number of days spent in the United States in the current tax year; plus • 1/3 of the days spent in the United States in the preceding tax year; plus • 1/6 of the days spent in the United Sates in the year prior to preceding tax year. 2
SECOND – what if a Canadian’s days surpass these thresholds? then what? The answer is US Internal Revenue Service Forms, notably #8840 – Closer Connection Exemption Statement for Aliens.
It’s noteworthy that if wintering in the US, Canadian residents are technically subject to US income tax. This happens if they exceed a specific number of days (based on a calculation on the form 8840) in the US in any one year. However, to avoid U.S. taxation, there’s IRS form 8840 (i.e., ‘Closer Connection Exemption Statement for Aliens’), which needs to be filed annually with the IRS.
By such form, you implicitly acknowledge that you met or exceeded the “substantial presence test” BUT are not going to be filing a US income tax return due to the fact that you maintain “a closer connection” to a foreign country, such as Canada, where you will be paying annual income tax. 3
Earning Rental Income From US Real Estate
THIRD – Canadians, receiving rents from US real estate may be subject to U.S. income tax. They have two options: • 30% withholding tax on gross rent with no requirement to file a U.S. tax return. • File a US Non-resident tax return and pay tax on net rental basis. However, there’s an exception when rentals are earned from a US vacation property rented for less than 15 days.
Selling US Real Estate
FOURTH – when a Canadian sells U.S. Real estate, the following tax implications will apply: •US withholding tax: Unless certain exceptions are met, the gross sale proceeds will be subject to a 15% US withholding tax at the time of transfer; AND • US non-resident income tax return/Canadian income tax return: A net taxable capital gain, depreciation recapture and an un-recaptured 1250 gain as determined under US income tax laws are reported on a US non-resident income tax return (Form 1040NR). Net taxable capital gains and recapture determined under Canadian tax laws are reported on a Canadian income tax return.
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“Tax law is complex. Every situation is different. I expressly state that the foregoing is for information purposes. In all cases, it’s necessary to consult a tax professional.” – Allan J. Gold
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TRAVEL INSURANCE
When going abroad, travel insurance offers protection from unexpected medical expenses not covered by your health insurance. But the hard truth is that some claims aren’t approved. Beyond late filing and lack of evidence, the cause may be undeclared medical conditions, lack of pre-authorization. Other reasons might be the insured’s lack of routine healthcare, risky behaviour, alcohol-related injuries. It’s dangerous for anyone to go on a trip without travel insurance. As travelers age, it becomes even more so. Whenever taking out a policy of this type, I strongly suggest that you: • Declare all medical conditions; • Disclose all visits (in the requested time period) to hospitals, clinics, doctors, etc.; • Ask for pre-authorization when in doubt.
PROVINCIAL HEALTH INSURANCE
For nearly everyone, health insurance is essential. For better finances, keeping this coverage in force is critical. The provinces have qualification criteria. In Quebec, a cardholder must not be absent 183 days or more per calendar year. So now you’re forewarned. I suggest that, if planning extended travel or stay outside Québec, please do: • Visit the web site of Régie de l’assurance maladie du Québec (RAMQ); • Contact RAMQ if you have questions.
CONDO CO-OWNERSHIP: Differences Between Joint Tenants With Survivorship and Tenants in Common
Many going south are considering the purchase of a condo. Some think shared ownership might offer an affordable way to jump into the market. However, it’s not without risks. I’m here and now going to address the issue of joint tenants with survivorship. I’ll introduce the topic of property ownership through Quebec law. And then, I’ll expand to include some precepts of Florida law. That’s because many Canadians opt for home ownership in that state.
In Quebec, real estate can be owned in several ways: (a) Sole proprietorship – that means the property belongs to one person. At present, there’s a single cadastre, i.e. one lot number; (b) Undivided co-ownership – that means the property belongs to several people, each owning therein a percentage (e.g., 50%, 33 1/3%, 25%, etc. as the case may be). (c) Divided co-ownership – that means one or more persons owns/own the so-called ‘condominium’ unit. Each unit is distinct from the others and bears its own lot/cadastre number. In addition, said person(s) own/owns a percentage of common areas proportional to the square footage of his/their unit.
In Florida, beyond a single person owning the property, there’s collective ownership – it’s broken down into two kinds: joint or common ownership. In most instances, joint owners can be either co-tenants in common or joint tenants with the right of survivorship. 4
Tenancy in Common
A tenancy in common may involve two or more owners. Shares might be equal, but there’s no requirement for equal ownership. Instead, their interest may be on a percentage basis: 10%, 20%, 30% and 40%, etc. Each co-tenant has equal rights of possession, usage and enjoyment. A person can transfer his/her interest. An ownership change doesn’t disturb the ownership status of other tenant(s) (co-owner(s). Jointly-owned property is presumed to be held in a tenancy in common unless the property deed specifies otherwise. A co-tenant’s ownership interest is part of his/her estate on death. It shall be distributed by will or as per the laws of succession.
Joint Tenant With Right of Survivorship (JTWROS)
That’s quite a mouthful! But what is it?
“The term joint tenant with the right of survivorship (JTWROS) refers to a legal ownership structure involving two or more parties for any type of financial account or another asset. When one of the co-owners dies in a joint tenancy with the right of survivorship, then the surviving co-owner automatically owns the asset….Each tenant has an equal right to the account’s assets and is afforded survivorship rights if one of the account holder(s) dies. A surviving member inherits the total value of the other member’s share of property upon the death of that other member.” 5
Permit me to break this down for you. JTWROS is an asset ownership structure involving two or more parties. It has several critical characteristics: • Owners acquire the property at the same time; • They have the same title on the asset(s); • They have an equal share therein; • They have the same right to possess the entirety thereof. • Major distinction from tenancy in common is that on a member’s death, the survivor inherits the total value of the deceased’s property share. That’s good if you’re the surviving party. But that’s bad if you go first. In other words, should there be a surviving member, the ownership share of the late member will not be transferred to heirs, but rather, will go to the survivor outside of probate.
DOS & DON’TS
Watch what you do if you’re going to warmer climes. Here are several dos & don’ts to add to your ‘Pre-Trip Checklist.’
Don’ts
- Don’t lie when it comes to travel insurance. And don’t withhold information about recent doctor appointments and hospital visits. Should you fall ill while outside Canada, those lies/omissions may come back to haunt you.
- Don’t be absent from Québec 183 days or more per calendar year.
- Don’t ignore U.S. income tax. Should you step offside – you’ll likely be called out! And the mess could ignite a firestorm among people close to you and heirs.
- Don’t agree to joint tenant with the right of survivorship (JTWROS).
Dos
But please do
- Dig deeper when it comes to US tax laws. Secure US tax advice.
- Make a full disclosure when applying for travel insurance.
- Live a healthy lifestyle, drink moderately, see to routine healthcare and avoid all risky behaviour.
- Stay on the right side of the rules insofar as Régie de l’assurance maladie du Québec (RAMQ) is concerned.
- Read the fine print, if and when buying a condo. Always opt for a tenancy in common pure and simple.
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The future depends on what you do today.” – Mahatma Gandhi
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CONCLUSION
Among popular US sun destinations, there’s Florida. It’s the ‘Sunshine’ state. Arizona is the ‘Grand Canyon’ State. And that’s just to name a few. Typically, sun & fun is what you want. You’ll likely spend most of your time at the beach, on a golf course or in a swimming pool. But if you don’t watch out – you’ll just get burned. And I’m not speaking of sun burn. Legalities might make the good times flameout. More precisely, you might go up in smoke from US income tax woes: taxes, interest, penalties, etc. Or while away, you can get burned alive for unforeseen medical expenses. And then there’s “condoitis” – if you agree to Joint Tenant With Right of Survivorship (JTWROS), your stake in a treasured US condo can be reduced to ashes when you pass. As a result, your estate may be left badly charred. All to say, you could find yourself in legal hell. So if wintering down south, you need to become informed and then get prepared. I’ve altered Horace Greeley’s famous phrase to read: “Go South, retiring man/woman, but do so intelligently!”
Allan Gold, lawyer Montreal and elder law attorney
P.S. “Cheers to a new year and another chance for us to get it right.” – Oprah Winfrey 6
! Call to action: To every attorney in the field, I say, “Write a post/article. Let’s help seniors & their families become better informed about elder law Canada! And by the way, please send it along. I’d love to read it.”
NOTICE – CAUTION –DISCLAIMER. The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
1. Image by Scott from Pixabay
2. https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test
4. https://finance.yahoo.com › news › community-prope.
5. https://www.investopedia.com/terms/j/jtwros.asp
6. https://www.brainyquote.com › oprah_winfrey_676234
**© 2023– ALLAN GOLD – ALL RIGHTS RESERVED-TOUS LES DROITS SONT RÉSERVÉS Ed. 2023-12-31-001
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