Issues from not paying Withholding Tax on Rental Income

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Michael (anonymous) Posted 5 days ago MadanCA Team edited answer 2 hours ago

I moved to the US from Canada end of 2024 and have not been paying withholding tax on my Canadian rental income.

I recently did the following:

Adjusted my 2024 tax return to put my departure date and let the CRA know i am no longer a tax resident.

Filed an NR6 for 2026 and will pay withholding tax moving forward.

For the 2025 rental income I earned in Canada I will file a section 216 next year. Will there be any penalties since I didn’t pay withhold tax? Will they still try to tax me on 25% of gross instead of net, after I report my income and expenses on the 216?

I also plan to sell a property in 2026, will I be unable to get a clearance certificate so i can pay 25% of the estimated capital gain instead of 25% of gross sale price since I didn’t pay the withholding tax in 2025?(I will be paying the withholding for 2026 since I filed the NR6)

Thank you,
Michael

1 Answer

score 0 · Answer 1 · 2025-12-29T19:45:29+00:00

Not Paying Non-Resident Withholding Tax on Canadian Rental Income

Michael — thanks for laying this out clearly. Below is how CRA typically handles this.

1) Penalties and interest for 2025
Yes. Since 25% non-resident withholding was not remitted for 2025, CRA will generally automatically assess:

A 10% late-remittance penalty on the unremitted tax, and
Interest, charged daily.

Taxpayer relief can be requested, but in practice it is often denied unless there were extraordinary circumstances (misunderstanding of the rules alone is usually not enough).

2) Will CRA tax you on 25% of gross rent?

No — once you file a Section 216 return, your final tax is based on net rental income (gross rent minus expenses).
That said, penalties and interest for missed withholding still remain payable even after the 216 is filed.

3) Effect of filing an NR6 for 2026
The NR6 does not fix 2025 retroactively, but it:

Reduces withholding going forward to 25% of estimated net income, and
Demonstrates compliance going forward, which is important for CRA.

4) Selling a property in 2026 (T2062 clearance certificate)
Yes, there is some risk here. CRA can delay or deny a T2062 Certificate of Compliance if non-resident remittances, penalties, or interest are outstanding.

5) Practical takeaway

File the 2025 Section 216 as soon as possible
Pay the resulting tax, penalties, and interest
Ensure all rental remittances are current before listing or selling in 2026

Doing this significantly improves your chances of a smooth T2062 clearance and avoids gross-withholding at sale.

Issues from not paying Withholding Tax on Rental Income

1 Answer

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