Non-Resident Landlords of Canadian Rental Properties: Tax Rules, Withholding, and Compliance

Owning a rental property in Canada while living abroad comes with unique tax obligations. If you earn rental income from a Canadian property but are no longer a Canadian resident – or were never one – you may be classified as a non-resident landlord in Canada.

Common non-resident landlord scenarios include Canadians who moved abroad for work or retirement, international investors who own Canadian rental properties, and individuals who relocated to countries like the U.S., UK, UAE, or Australia but retained Canadian real estate. Regardless of the reason, Canadian rental income is subject to special tax rules designed to ensure proper tax collection from non-residents.

Understanding these rules is critical. Missing a filing, misunderstanding withholding tax, or assuming someone else is handling compliance can lead to penalties, excess tax withheld, or delayed refunds. This guide explains the key tax obligations non-resident landlords need to know—and how to stay compliant.

What Makes You a “Non-Resident” of Canada?

Residency for tax purposes is not determined solely by citizenship or immigration status. The Canada Revenue Agency (CRA) looks at residential ties to determine whether an individual is a resident or non-resident.

At a high level, factors include where you live, where your spouse and dependants reside, and whether you maintain significant ties such as a home, bank accounts, or health coverage in Canada. If you have severed most primary residential ties and established residency elsewhere, you may be considered a non-resident.

Residency status matters because it determines how your Canadian rental income is taxed. Non-residents are taxed differently than Canadian residents, primarily through withholding tax rules under Part XIII of the Income Tax Act.

A common misconception is that living abroad automatically makes you a non-resident, or that rental income is taxed only in your country of residence. In reality, Canadian-source rental income remains taxable in Canada regardless of where you live.

Withholding Tax on Canadian Rental Income (Part XIII Tax)

By default, a non-resident landlord in Canada is required to pay a 25% withholding tax on gross rental income. This tax applies to the total rent collected, before deducting expenses such as mortgage interest, property taxes, repairs, or management fees.

The responsibility to withhold and remit this tax typically falls on the tenant or property manager. If a property manager is involved, they usually handle the withholding. If there is no agent, the tenant may be legally responsible for remitting the tax to the CRA.

This system often creates a significant cash-flow issue for non-resident landlords, as tax is withheld on gross rent rather than actual profit. In many cases, the withheld tax far exceeds the landlord’s true tax liability.

Reducing Withholding Using Form NR6

To address the cash-flow issue, non-resident landlords can file Form NR6. The NR6 form allows the CRA to approve withholding tax based on net rental income instead of gross rent.

Once approved, withholding is calculated after deducting eligible expenses, significantly reducing the amount remitted during the year. However, NR6 filings come with strict compliance requirements.

The NR6 must generally be filed before the first rental payment of the year or before rental income begins. Additionally, landlords who file an NR6 must commit to filing a Section 216 return after year-end.

Failure to meet these requirements can result in penalties, retroactive reassessments, and the loss of NR6 approval in future years.

Filing a Section 216 Non-Resident Tax Return

The Section 216 return allows non-resident landlords to report their actual rental income and expenses and calculate tax based on net income rather than gross rent.

This return is optional but highly beneficial in most cases. It allows landlords to recover excess withholding tax paid during the year, especially if no NR6 was filed or if expenses were higher than expected.

The Section 216 return reports rental income, deductible expenses, and capital cost allowance (where applicable). It must be filed by June 30 of the year following the rental period.

Madan CPA provides a detailed compliance resource that many non-resident landlords find helpful: https://madanca.com/section-216-checklist/

Filing the Section 216 return accurately and on time is critical, as late or missing filings can lead to penalties and denied refunds.

NR4 Slips and Annual Reporting

An NR4 slip summarizes the gross rental income paid to a non-resident and the tax withheld during the year. These slips are part of Canada’s annual information reporting system.

NR4 slips are typically prepared by the property manager or withholding agent, but ultimate responsibility still rests with the non-resident landlord. Errors or missing slips can create mismatches with Section 216 filings, leading to CRA inquiries or delayed assessments.

Ensuring that NR4 slips accurately reflect rental income and withholding amounts is essential for a smooth Section 216 filing and refund process.

Selling Canadian Rental Property as a Non-Resident

Selling Canadian real estate as a non-resident triggers additional compliance obligations under Section 116 of the Income Tax Act.

Non-resident sellers must notify the CRA of the sale and file Form T2062 to obtain a Certificate of Compliance. Without this certificate, the buyer’s lawyer is required to withhold a significant portion of the sale proceeds—often 25% to 50%—as a precaution.

This withholding is not the final tax but a temporary holdback until the CRA confirms compliance. Delays in filing the T2062 can result in extended holdbacks and cash-flow challenges.

Madan CPA has prepared a practical checklist for this process: https://madanca.com/t2062-checklist/

Proper planning before listing the property can help minimize delays and avoid unnecessary withholding.

Common Mistakes Non-Resident Landlords Make

Non-resident landlords often encounter issues due to misunderstandings or assumptions, including:

• Missing or late NR6 form filings
• Failing to file a Section 216 return
• Assuming property managers handle all tax compliance
• Poor recordkeeping of rental income and expenses

These mistakes can lead to penalties, lost refunds, and unnecessary stress. Many issues only surface years later during CRA reviews or property sales.

Why Professional Advice Matters

Non-resident rental taxation is complex and unforgiving. Penalties can apply even when mistakes are unintentional, and cross-border tax considerations add another layer of complexity.

For landlords living in countries such as the U.S., UK, or UAE, rental income may also need to be reported locally, making coordination essential to avoid double taxation.

Madan CPA focuses on proactive planning – ensuring compliance from the start rather than fixing problems after they arise. Professional guidance helps non-resident landlords stay compliant, optimize cash flow, and avoid costly errors.

Conclusion

Being a non-resident landlord in Canada comes with specific tax obligations, including withholding tax, NR6 filings, Section 216 returns, NR4 reporting, and Section 116 compliance when selling property.

Understanding these requirements and meeting deadlines is essential to protecting your investment and avoiding unnecessary penalties. With proper planning and professional support, compliance becomes manageable rather than overwhelming.

For non-resident landlords seeking clarity and reliable guidance, working with experienced professionals like Madan CPA can make all the difference.

FAQs for Non-Resident Landlords in Canada