CRA Audit Letter


Letter Writing Campaign

The new CRA Audit Letter Writing Campaign is designed to facilitate behavioral changes among a selected taxpayer population by providing the selected population with relevant information in order to improve their understanding of their current or past reporting requirements and guidance on how to correct any common errors.

US Taxation of Foreign Students

Foreign Students in the US

There are over 1 million foreign students studying in the United States on a F, J, M or Q visa. Most of them have a healthy fear of making errors on their tax return or forgetting to file entirely. Errors or failure to file could result in fines, being reclassified as a US tax resident or, worst case scenario, deportation. It’s important for these individuals to look for the right information and know who to ask for help. A tax advisor is often their best bet for getting the right information explained in the simplest way possible.

Students who aren’t US citizens, residents with a green card or pertain to the substantial presence test are nonresident aliens. Nonresident aliens have up to five years to study in the US under certain visas and can only be taxed on US source income as long as certain reporting obligations are met. They risk being taxed on their worldwide income or become subject to extensive reporting on assets held in their home country if they do not take the proper steps to remain a US tax nonresident. Filing IRS Form 8843 each year to claim a statutory coverage, is the key to avoid becoming a resident alien.

Substantial Presence Test

Resident aliens have either lawful residency or satisfy the substantial presence test. Resident aliens are responsible for paying taxes and reporting on all sources of income both inside and outside of the US.

The substantial presence test is met if a foreign student is in the US for at least 31 days during the current year and for at least 183 days either in the current year, or over the course of three years. The 183 US presence days in a three year window is determined as the number of days the student is in the US in the present year, plus one third of the days in the previous year, plus one sixth of the days in the year before that.


Foreign students should also be aware of what scholarships can and can’t be taxed in the US. Qualifying scholarships and money that is awarded to them outside of the US are non-taxable. Qualified scholarships are non-taxable for anyone studying in the US. These apply to money required for a student’s education, such as: tuition, fees, books and supplies required to enroll and properly attend classes.

Taxable scholarships on the other hand, include: room and board, travel expenses and other basic necessities that don’t directly relate to completing course work. Funds that aren’t put towards a degree are also taxed along with fellowship grants.

If a foreign student receives a taxable US scholarship, fellowship, or participates in on or off campus employment, he or she must report this income on US Nonresident Alien Income Tax Return Forms 1040NR-EZ or 1040NR. In addition, if the student is from a country where the US has a bilateral Income Tax Treaty, such as Canada or the United Kingdom, the student may be able to exclude or reduce tax on their fellowship or employment income.  The treaty election will be filled out on Form 8833 along with a 1040NR-EZ or 1040NR.  To file a US tax return, the student must hold a valid US Social Security Number or an Individual Taxpayer Identification Number. The latter can be obtained by filing Form W-7 with certain prescribed supporting documents.

Your Next Step

It’s a lot to take in. It’s important that foreign students look for the information in the right places when filing their taxes. Then they will be able to focus on their studies, which is the reason they came to the US in the first place.

If you have questions about the above post, please let us know and we would be happy to help you. You can contact us here.



New ITIN Requirements

Every taxpayer with US filing obligations, whether in the form of a tax return, a declaration of estimated tax payment or an informational disclosure, must be identified by a taxpayer’s identification number.  Typically, such identification number is an individual’s social security number.  If an individual is not eligible for a social security number, he or she can apply for an individual taxpayer identification number ITIN.

The 2015 Protecting Americans from Tax Hikes Act (the 2015 Path Act) has modified both procedural requirements on obtaining new ITINs and prescribed terms of the existing and new ITINs.  The new rules are codified in the newly introduced Section 6109(i) of the Internal Revenue Code and are effective after December 18, 2015.

Under the new rules, the requirements for an ITIN application differ whether the applicant resides in the US or abroad.  For applicants residing outside the US, the IRS allows to submit an ITIN application either (a) in-person to an IRS employee or a designee of the Secretary at a US diplomatic or consular post or (2) by mail with the IRS.  The IRS is responsible for establishing procedures on submission by mail.  It appears that there are no significant changes with the types of documents for proof of an applicant’s identity, foreign status and residency.  Either original or certified copies should remain valid.

Under the 2015 Path Act, the ITINs will be differentiated between all-purpose ITINs and treaty-benefits ITINs with distinguished numbers.

The new provision changes how long ITINs will remain in effect.  For an ITIN obtained as of January 1, 2013 or later, it should become permanent for as long as its owner has filed a federal income tax return (claimed as a dependent on a return) for three consecutive tax years.  Failure to meet the three-year reporting window will cause the ITIN to expire on December 31 of the third consecutive tax year.

For ITINs issued before January 1, 2013, the expiry date is determined based on whether or not a tax return has been filed for three consecutive tax years.  If not filed, the ITIN invalidates on the earlier of the two: (1) the last date of the third consecutive tax year or (2) December 31, 2015.  For filed returns, the ITINs are scheduled to expire on a staggered schedule between 2016 and 2019, based on the issuance year (pre-2008 through 2012).  Unless, timely renewed, no pre-2013 issued ITINs will be valid past 2019.

Considering that the condition for an ITIN retention under the new rule is a three-year filing requirement of an income tax return as opposed to other disclosures, such as Form 8840, Closer Connection Exception Statement for Aliens, or Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, taxpayers who wish to file the latter forms with an ITIN may want to start attaching them to 1040NR returns.

If the above changes apply to you and you need assistance in renewing an ITIN, please feel free to contact us here.



The Protecting Americans from Tax Hikes Act of 2015 (the 2015 Path Act), signed into law on December 18, 2015, increased the rate of withholding from 10% to 15% on disposition of US real property by non-US citizens, residents or Green Card holders under the Foreign Investment in Real Property Act of 1980 (FIRPTA).  The new regime does not apply (the 10% withholding requirement still remains) on sale of a principal residence with a purchase price of $1 million or less and to which the exemption for a residence bought for $300,000 or less does not apply.

The new provision becomes effective on transfers after February 16, 2016.

Under FIRPTA, gain or loss realized by a non-resident alien on sale of US real property interest is subject to income tax withholding.   A buyer of the US real property generally has a duty to withhold 10% (newly 15%) of the gross sales proceeds at the time of sale and remit it to the IRS within a narrow time window.

In contrast, if a US or foreign partnership with foreign partners sells US real property, the buyer is not required to withhold on sale.  Instead, it becomes a responsibility of the partnership to hold back tax on the amount realized by the foreign partner.  Partnerships are now too required to withhold at the rate of 15% instead of the former 10%.  The same an additional 5% increase also applies to US corporations, US or foreign estates or trusts.

The mechanisms to reduce or eliminate withholding requirements still exist if certain criteria are met.

Other significant FIRPTA amendment relates to an increase in the maximum stock ownership, held directly or indirectly, by a foreign shareholder in a publicly traded US real estate investment trust (REIT).  Under the new law, the ownership threshold in a REIT increases from 5% to 10% for purposes of being FIRPTA exempt.  As long as the percentage ownership threshold does not exceed 10%, any distributions attributable to gain from sales or exchanges of US real property in a REIT are treated as a dividend rather than as FIRPTA gain.

If the above changes apply to you and you need assistance, please feel free to contact us here.