A Canadian resident purchasing a United States residential property that is rented to another party for any part of a calendar year is subject to US income tax on the rental income. Non-resident property owners may elect to pay either a tax of 30% of the gross revenue received (this can be withheld by the rental manager and forwarded directly to the IRS without the need to file a US income tax return) or they may elect to pay tax on the net rental profit.
Anyone that elects to pay tax on the net rental profits must file a US income tax return
In order to file a US income tax return a nonresident must obtain an IRS Individual Taxpayer Identification Number by completing IRS Form W-7, (IRS Application for Individual Taxpayer Identification Number).
An Individual Taxpayer Identification Number is a tax processing number only available to certain nonresident and resident aliens, their spouses, and dependents that are not eligible to obtain a Social Security Number.
Form W-7 to Apply for a Federal Tax ID Number
The IRS requires that the completed and signed form W-7 be supported by approved documentation such as a passport and a birth certificate substantiating foreign/alien status and the true identity of each applicant. The supporting documentation must be certified by a US notary, by an IRS agent at an IRS walk-in office, or by an Acceptance Agent authorized by the IRS. You may mail the documentation, along with the Form W-7, to the address shown in the Form W-7 Instructions, present it at an IRS walk-in office, or process your application through an Acceptance Agent authorized by the IRS.
Form W-7 must be accompanied by the applicant’s current income tax return and a $50.00 US application fee. The application fee may be paid in cash, U.S. world money order payable to the U.S. Treasury, or by major credit card at an IRS walk-in center. Credit card transactions are not available to anyone mailing their application to the IRS.
Click here for the IRS instruction page regarding form W7
Important Notes About the Tax Identification Number (ITIN)
A person that may be eligible for a US Social Security Number may not apply for an Individual Tax Identification Number nor is anyone eligible for an ITIN if they have applied for a US Social Security Number, or possess a green card, or has applied for a green card.
The following individuals are eligible to apply for an Individual Tax Identification Number:
- A non-resident alien that requires an ITIN to claim tax treaty benefit.
- A non-resident alien that is filing a U.S. tax return.
- A non-resident alien deemed to have a substantial presence in the US and therefore considered to be U.S. resident alien for tax purposes (based on days present in the United States) filing a U.S. tax return.
- A dependent of a U.S. citizen or a resident alien.
- A spouse of a U.S. citizen or a resident alien.
- A non-resident alien student, professor, or researcher filing a U.S. tax return or claiming an exception.
- A dependent of a nonresident alien holding a U.S. visa.
- A spouse of a nonresident alien holding a U.S. visa.
The receipt of an Individual Tax Identification Number does not change anyone’s immigration status or their right to work in the United States nor does it make the recipient eligible for the earned income tax credit.
Documents Needed for Your Tax ID Number Application
An applicant for an IRS Individual Tax Identification Number attending the office of an authorized an Acceptance Agent or attending an IRS walk-in office should bring the following documents:
- Original passport and a photocopy that can be notarized or certified.
- Original birth certificate and a photocopy that can be notarized or certified.
- Marriage Certificate If you are a married woman and a photocopy that can be notarized or certified.
- Mailing Address.
- If you are applying for an ITIN because you have purchased a rental property you will need a copy of the rental agreement showing that the property manager wishes to withhold tax.
Form W-7 must be signed under penalty for perjury so it is important that the information given to the IRS is true and proper.
IRS walk-in office
For Canadians in and around Metro Vancouver, the nearest IRS walk-in office is located at the following address:
Internal Revenue Service
The Crown Plaza Building,
114 West Magnolia,
The IRS requires that your current income tax return must be included with your application for an ITIN.
AG TAX LLP CAN HELP
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws. We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.