Canadian residents who own shares of a U.S. publicly traded partnership (PTP) in their Canadian investment account may be asked by their brokerage to obtain a U.S. individual tax identification number (ITIN). This article discusses the IRS ITIN process to follow when a Canadian resident owns units of a U.S. PTP.
The Broker And The Withholding tax
All publicly traded investments in Canadian brokerage are in the nominee’s name: While you have the beneficial ownership of the investments in your account at the brokerage, the brokerage is the registered owner (the nominee).
The brokerage must withhold and remit the tax on distributions (37%) and upon the sale (10%) of a PTP to the IRS and provide the beneficial owner with a U.S. form 1042-S.
Form 1042-S is used to report withholding taxes on investments held by non-U.S. persons, so providing an ITIN is not required. However, you may be entitled to a reduced withholding if you provide an ITIN to the broker.
IRS ITIN Application Requirements
An ITIN may be applied for using IRS form W-7 and providing original identification confirming you are a non-U.S. person. To avoid sending your original identification to the IRS, you can use the services of a Certifying Acceptance Agent to assist with the W-7 application and certification of your identification.
As a non-resident partner of a PTP, you must include a copy of the portion of the partnership agreement displaying the partnership’s employer identification number (EIN) and showing that you’re a partner in the partnership conducting business in the United States (Exception 1a).
If you hold the PTP units in a brokerage account, you cannot obtain documentation confirming you are a partner. In this case, you must wait for the brokerage to issue the 1042-S after the end of the tax year, and you can submit your W-7 application with a U.S. 1040NR tax return.
Most Canadians holding U.S. PTPs will not qualify to apply for an ITIN in advance and must wait until they receive a 1042-S and attach the ITIN application to the U.S. 1040NR tax return.