Unintended consequences

Often it’s the unintended consequences of an event that impacts our lives, rather than the obvious one. An example many of us experience everyday are suburbs. The development of railways in the 1800s to connect the east and west coasts of the continent made it possible for more people to live outside of the major cities and still have access to the conveniences with only a moderately short train ride. As Henry Ford’s innovations reduced manufacturing costs, it made the automobile financially accessible to more people; expanding the development of communities on the outskirts of the cities. This manufacturing evolution also helped the US to successfully ramp up their efforts during the Second World War.

Today, we have governments, whether they are municipal, provincial, state or federal, all struggling with rising costs, higher debt and lower revenue flows. While lowering costs is generally the most obvious way to improve their financial pictures, the easiest way to right the balance in the short-turn is to raise taxes. Unfortunately for governments, this is not an endless source and at some point they have to turn to other potential taxpayers who are not part of the current base.

Examples of this are Canadian snowbirds. Many retired Canadians make the annual winter pilgrimage south to warmer climes to places like Arizona, California and Florida. For many, this was usually a three month hiatus give or take a few days or weeks, and the ramifications of a miscount in those days was less serious than today. While they are opening up the borders for longer periods, they are also redefining the definition of who is a US citizen for tax purposes. Even though you are a Canadian citizen and pay taxes here it is possible that you may be required to file a tax return in the US.

Technology and data storage capabilities have strengthened government agencies ability to track large amounts of information, analyze it and then share the data with other governments or agencies. The ramifications of these technological advances, combined with the demand for increased government revenues has opened up snowbirds to potential tax obligations, prohibition from crossing of the border for periods up to ten years and jeopardizing healthcare benefits back home. Granted, these are the extreme examples, but all a potential reality if you fail to pay attention to the new order of things.

So what can you do to stop this? Not much; you can only control yourself.

That means exact record keeping; a thorough understanding of the rules, both as they are today and as they continue to change, and consistent filing of any forms you may be required to file by the US government. These are the unintended consequences, but consequences all the same. Christine Perry, a lawyer with Keel Cottrelle LLP in Toronto who specializes in cross-border tax law put it best: “It’s an information-sharing world now. The stuff you used to be able to get away with — or kind of take a ‘hope for the best’ approach — you can’t do anymore.”

 

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This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.