Non resident withholding tax – What is a section 217?
Allan Madan, CPA, CA
Are you a nonresident of Canada? Do you know what the Section 217 Election means for you? Doing business in another country can be difficult, as you have to deal with two systems and two different sets of laws. In this article, I will explain more about this potentially confusing topic and provide you with the information you need to make the correct decisions. Before we do that, however, let’s do some background work. Are you a nonresident looking to sell real estate? Visit our resource: If I am a nonresident of Canada, and I sell Canadian real estate, what is the procedure for filing tax returns, and paying taxes?
Non resident withholding tax – Section 217 Election
When a Canadian nonresident withdraws money from their pension, the government applies a withholding tax at the source. The Canada Revenue Agency allows those people to elect to file a Canadian return and report pension as well as other Canadian sourced income.
Income types you can include are:
- Canada Pension Plan and Quebec Pension Plan benefits;
- old age security pension;
- registered retirement savings plan payments;
- registered pension plan payments;
- registered retirement income fund payments;
- death benefits;
- employment insurance benefits
- retiring allowances;
- registered supplementary unemployment benefit plan payments;
- deferred profit-sharing plan payments;
Benefits of Electing
So why should you file? It is not only optional, but it also allows nonresidents to claim deductions and credits normally given to Canadian residents! If excess withholding tax was withheld, this would entitle the individual to a refund. For more information, please visit the CRA’s website: Electing under Section 217 of the Income Tax Act or TurboTax’s Schedule A – Statement of World Income.
Calculating Federal tax
If you file, you must report your worldwide revenue on Schedule A – Statement of World Income. This will help the CRA decide allowable amount of federal non-refundable credits. You can find the form at the CRA’s website: 5013-SA T1 General.
Due date
The due date of the election is June 30th of the following year. If you file the return late, the Canada Revenue Agency will not honor the refund.
Filing impacts
Filing a this return does not impact the residency status of an individual. The government decides Canadian residency by primary ties (dwelling, spouse and dependents) as well as secondary ties (economic, social ties, etc.). Filing the s.217 election will not harm your residency status.
Form NR5 – Reducing tax withheld
To reduce withholding tax, you may file the NR5 form. The CRA calls the NR5 the “Application by a Non-Resident of Canada for Reduction in the Amount of Non-Resident Tax Required to by Withheld”. Once approved, your financial institution will be able to reduce the tax withheld on the revenue. If the CRA approves the NR5, you must file the section 217 for each year of the approval period. For more information on RRSP tax deferral for nonresidents, please visit our resource: Deferral of Tax Payment on RRSPs for Nonresidents.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CPA, CA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
This topic is very confusing. I’ve lived in the US since 1981. I am a CPA by way of the RIA CMA program but have never worked in the Canadian income tax environment. Now over 65 and collecting CPP, OAS, US Social Security and an annual annuity from a Canadian RRSP I established while working in Canada in the 70’s, I have issues paying a non resident tax on my Canadian RRSP annuity payment. First of all I don’t live in Canada and don’t derive any services from Canada, therefore why should I pay Canadian taxes? When you combine all of my OAS, CPP and annuity, the sum is about one half the CRA standard deduction allowed an individual in Canada. Yes I do have US derived income, but when I completed the Section 17 return including my “world income” my calculation deemed that I had no tax due and therefore I should be entitled to a refund of my non resident tax withheld. After filing the Section 217 tax return, CRA informed my I had “no additional tax liability”. Nothing was said about refunding my non resident tax withheld. I report all Canadian source income on my US tax return. So the question is, under what circumstances does CRA refund non resident tax withheld?
If by filing a Section 217 return your tax Canadian tax liability is less than the non-resident taxes deducted at source, you should receive a refund for the difference.