The six month rule
Going somewhere off island? How long are you going to stay?
How many trips and visits did you make last year? Where did you go and how long was each visit? Your thought is — ‘We had fun, enjoyed ourselves, so why do we need to pay attention to this minutia?’
SIX MONTHS is a long time. It is a casual ‘slang’ measurement in business and in anyone’s life. It means measuring a year, now half over; in thinking of seasons in Bermuda, basically, summer and a bit of winter; it is one of a number of subjective measures used to compute employee eligibility for full-time benefits, and building block statistical analysis; the measure is applied for extensions on tax reporting, for assessing investment statistics; more commonly, it is a header to the upslope (or downslope) of another birthday.
SIX MONTHS is a marker.
The most important six month measurement of all that occurs routinely today is calculating which country is your permanent residence.
Six months (specifically 183 days) on a generally, universal basis is the supreme test for residency.
Why? Because for almost all of the world, where you are resident — not what citizenships you have — is where you are liable to tax. Where you may, or may not meet eligibility requirements for various government benefits. The six-month (183-day) test has become so critical that everyone who travels must track the number of days that they spend in any other country. In most countries, it is cumulative number of days on a calendar year spent in that country.
Some countries differ, however; the United Kingdom has an online residency test calculator. The United States residency is different again. There are two different agencies, US. Homeland Security monitoring the borders, issuing visas, and the like along with US. Internal Revenue Service (IRS) checking foreign national visits under the so-called Substantial Presence Test, the total cumulative number of days in a calendar year, and/or number of days calculated on a three-year rolling average. Further, under the US. Regulations, a visitor is presumed to be a US resident if the visit is more than 120 days. It is up to the foreign national to rebut that presumption by asserting closer connections to another country.
Countries must distinguish between resident and non-residents in their jurisdiction because of the methodology used in determining the basis for imposition of an income tax. Under the residence jurisdiction doctrine that is based upon the nexus between the country and the person earning the income, residents of a country are subject to taxation on both their domestic and foreign-sourced income.
From a financial perspective, persons (individuals and legal entities) residing in (a resident), or investing in (a non-resident) a country are given designated classifications in order to determine the level, method, and thresholds for income tax assessment. A resident receives tangible and intangible social, financial, legal, and other benefits from the government of the country, which, in turn, generates revenue by assessing tax on the resident’s income derived from both domestic and from foreign-sources.
What, pray, does this have to do with you, a resident of Bermuda where there is no problem, no individual or corporate income tax — although certainly without some financial and legal planning, Bermuda estate tax can be substantial.
Are you crossing borders on a routine basis? The intent of this article is to illuminate border control tracking measures being taken (or contemplated) by other countries to assiduously document time you are spending in their fair environments, then, moving to assess tax (or deny benefits) on you, if you are deemed to be a resident there.
A New Initiative. United States and Canada collaborate on an Entry/Exit Initiative. Fully titled ‘Beyond the Border: a Share Vision for Perimeter Security and Economic Competitiveness’ and effective on June 30, 2014, the United States and Canada are launching a combined exercise where both countries will share the traffic flow of people between the two nations. Entering and leaving times, days spent, identities and other information will be shared on a routine basis. This programme will enable both the United States and Canada to assess who should be taxed; who is entitled to benefits in each country, or not; whose estate will be probated and taxed, and in which, or both countries, the individual is actually considered a resident.
The Entry/Exit Initiative encompasses all border crossings: planes, automobiles, bicycles, foot travellers, ships and cargo, and possibly, electronic transactions passages appears to be a highly sophisticated tool in the cooperation between two nations.
The result: each country will know who is staying in the country unlawfully, and will tax, penalise, deny benefits and ban entry access, accordingly.
Warning. This is a serious portend of the future. You do not want to be caught out!
You didn’t think your passport had an RFID chip in it just for decoration, did you? Border tracking is advancing quickly and globally. What the U.S and other advanced nations tend to do is trend set. No one really thought all that FATCA stuff would be enacted either — and many nations are copying the US. Model.
Next: They can Tax you and they can axe your attempts to travel. The United States Immigration Service and Internal Revenue have very specific regulations and penalties for individuals — known as illegal aliens — who have entered the country illegally, or overstayed a legal visa.
The UK, Canada, and other countries have enhanced border monitoring as well.
Martha Harris Myron JP CPA PFS CFP is a Bermudian journalist and a cross border financial planning specialist.
Pondstraddler Life™ Consultancy provides offshore financial perspectives for international citizens living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre.
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