This article discusses the situations for Canadians have a U.S. income tax filing obligation, and require a U.S. Individual Tax Identification Number (ITIN) and Form W-7 which is the IRS form required to apply for an ITIN. It also describes the services of a Certified Acceptance Agent to certify Passports, and how the firm of Edelkoort, Smethurst, and Schein Chartered Professional Accountants LLP can support Canadians with completing Form W-7 and their ITIN applications.

ITIN
An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service (IRS). The IRS issues ITINs to Canadian individuals who are required to file a U.S. individual income tax return. ITINs do not serve any purpose other than U.S. income tax reporting (same ITIN is used for U.S. federal and state income tax filings).  An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit.

If you are a Canadian who, for whatever reason, also has a U.S. Social Security number (SSN), then you cannot apply for an ITIN. You must always continue to use the SSN.

As mentioned, ITINs are required for Canadian individuals who have individual tax filing obligations with the IRS. For example, a Canadian resident purchases a residential rental property in the U.S., rents the property to tenants and chooses to report the rental income as ‘effectively connected income’. In this situation, a U.S. individual income tax return must also be filed (Form 1040NR), and in order to do so, the owner must have a U.S. tax identification number (ITIN).

ITINs have an expiration date, but the expiration date depends on whether or not you have actually used the assigned ITIN on a U.S. federal individual income tax return. For instance, ITINs that haven’t been included on a U.S. federal tax return at least once in the last 3 consecutive tax years will expire. Otherwise, there is a 5 year maximum for ITINs. The IRS generally will send letters to ITIN holders to let them know their ITINs are set to expire. ITIN’s are renewed using the same Form W-7 as when applying for a new ITIN.

Please note that ITINs are only for individuals. If a Canadian corporation is doing business in the U.S. and requires a tax identification number for U.S. corporate income tax purposes, the Canadian corporation requires an Employer Identification Number (EIN). The EIN is applied for using Form SS-4 and instructions can be found on the IRS web-site. Or, contact the firm of Edelkoort, Smethurst and Schein if you require our assistance.

Form W-7

The IRS form that is required to be used when applying for an ITIN is Form W-7. Generally, Form W-7 is required to be attached and filed with an individual US tax return – Form 1040NR. However, the IRS does have five specific exceptions where you can submit Form W-7 without the need to file Form 1040NR.

The five IRS exceptions are fairly complex to explain, and beyond the scope of this article. As an example to illustrate, IRS Exception # 1 includes situations where a Canadian has invested in a property rental in the U.S. and begins renting to tenants. Tenants, or more often the property management company in charge of collecting rents, must withhold 30% of the gross rents and remit to the IRS. In this situation, the IRS allows Canadians to submit Form W-7 prior to filing Form 1040NR, but the Form W-7 must include an original letter from the property management company indicating that the property is currently being rented. Once the ITIN has been issued, the Canadian investor can then file Form W-7ECI with the property management company to waive the 30% withholding tax requirement. In this situation, the Canadian must file Form 1040NR during the corresponding tax year.

All to say that Form W-7 is very detailed and must be completed accurately.

Form W-7 must be submitted with original copies of documents that will verify the ‘Foreign Status’ as well as ‘Identity’. A valid, original and unexpired Canadian Passport, or certified copies of this document, will provide the supporting documentation that the IRS will require to verify both foreign status and identity. The original passport or certified document, must be submitted with Form W-7 and Form 1040NR. Please note – the firm of Edelkoort, Smethurst and Schein are IRS Certified Acceptance Agents, and can certify your passports and submit certified copies on the behalf of applicants. Please see below for further information.

If Form W-7 is submitted properly, the IRS will send a letter to the applicant with their ITIN in about 6-8 weeks.

Certified Acceptance Agent
As mentioned above, the IRS has a process in place to apply for an ITIN. Form W-7 must be completed, and submitted with the owner’s original, valid Canadian Passport, along with a U.S. individual income tax return (Form 1040NR and schedules) to the IRS. The IRS returns passports to the ITIN applicant by regular mail. For various reasons, primarily ongoing travel purposes, many people are not able to do without their passports for an extended period of time. The IRS recognizes this, and as an alternative, applicants can use the services of a ‘Certified Acceptance Agent’ to validate the passport and submit the ITIN application. The firm of Edelkoort, Smethurst and Schein offers this service, which allows owners to retain possession of their passports. Passports are reviewed in our offices and returned immediately to the owner.

The ITIN application process can be very confusing and complex for people. Form W-7 must be completed following very precise instructions. Our firm processes these on a regular basis and we can complete Form W-7, certify passports, and any other filings that might be required including Form 1040NR (U.S. individual income tax return for non-resident aliens). We also can answer any questions or concerns regarding U.S. and Canadian income tax filings and basically demystify the process, such as explaining the rules when Canadians have sold their U.S. vacation homes or U.S. property rentals.

SUMMARY
We hope you have found this article useful. Please contact our firm to discuss how Edelkoort, Smethurst, Schein CPAs LLP can assist you with your U.S. and Canadian individual tax planning and filings. We look forward to hearing from you. Thanks for taking the time to read this article, and best wishes.

Derek Edelkoort, CPA, CGA,
IRS registered paid tax preparer and IRS Certified Acceptance Agent
Partner
Edelkoort, Smethurst, Schein CPAs LLP

Edelkoort | Smethurst | Schein CPAs LLP is located in Burlington Ontario servicing the Golden Horseshoe and Greater Toronto Area and well beyond. The firm is fully licensed with CPA Ontario to provide assurance, tax and accounting services as well as registered as tax preparers with the Canada Revenue Agency (CRA) & Internal Revenue Service (IRS).

All blogs and articles published on this site are for informational purposes only and do not constitute professional advice.  Readers should contact a professional to discuss their individual situation.  Neither the author nor the accounting firm shall accept any liability for any reliance placed on the information posted.