Non-Residents Earning Rental Income from Real Estate in Canada

Non Residents of Canada earning rental income from Canadian real estate have Canadian tax obligations. This article identifies the different forms and returns that can be or are mandatory to be filed with the CRA regarding the rental income earned.

Background

When non-residents receive rental income from real property in Canada, taxes on the income is required to be remitted to the CRA. Generally, 25% of the gross rental income is to be paid to the CRA by the 15^th of the month following the month the rental income was paid. Failure to withhold and remit the amount can result in a penalty of 10% of the amount required to be withheld, plus interest. The penalty may be increased to 20% for future withholding failures in the year. 

NR4 Information Return– Statement of Amounts Paid or Credited to Non-residents of Canada

The NR4 return is a statement that shows the amount that is paid or credited to a non-resident recipient (gross income) and the taxes that have been withheld. Filing the NR4 is mandatory and must be done by March 31^st of the following year. Failure to file the NR4 return by the deadline can result in significant penalties with the minimum being $100. The penalty is based on the number of returns filed late. The specific penalty amounts are listed on the CRA website , click here to find out. 

Section 216 Election

Non-residents can elect under section 216 of the Income Tax Act to pay tax on the net rental income rather than on the gross income. The section 216 can be elected by filing a separate tax return with the CRA for the rental income earned from the investment property in Canada.If the taxes that had been remitted to the CRA for the tax year is greater than the amount of tax calculated on the return, the excess amount will be refunded to the non-resident by the CRA. 

Generally, the section 216 return has to be filed by no later than two years from the end of the year in which the rental income was paid or credited to the non-resident.

NR6 Form – Withholding on Net Rental Income

 If a non-resident intends to pay tax on the net rental income, a NR6 form can also be filed with the CRA. This allows taxes to be withheld and remitted based on the net rental income. The NR6 should be submitted before the first rental payment is due for the year. Non-resident tax should be withheld on the gross rental income until the CRA sends a letter indicating approval of the NR6 form filed.

If the NR6 has been filed and approved for a tax year, a section 216 return must be filed. The due date for filing the section 216 return is June 30^th of the following year. If there is a tax balance owing, the amount must be paid by April 30^th.

If the NR6 form for a year is approved, but the section 216 return is not filed by its deadline, taxes for that year must be paid on the gross rental income.

For additional information on tax topics relating to taxes & Canadian real estate, please visit our blog on Tax for real estate sales.

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.

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