If you are a non-resident of Canada receiving rental income from a rental property in Canada, then this article is for you! Below you will learn relevant information such as filing and withholding requirements, as well as general information for non-residents of Canada receiving rental income.
When you receive rental income from a rental property in Canada, the payer (the tenant or a property manager) is required to withhold a non-resident tax of 25% on the gross rental income. The payer then has to remit the tax to the CRA. The due date of the payment of tax is on or before the 15th day of the month following the month that the rental income relates to. If the payer fails to withhold and remit the non-resident tax, the CRA will charge interest compounded daily on the amount not paid. You may receive some or all of the 25% of tax back when you file a Section 216 tax return. More details are below.
The payer also has to give you NR4 slips showing the gross amount of rental income paid to you, and the amount of non-resident tax withheld. The payer also has to send a NR4 return to the CRA. As a non-resident of Canada receiving rental income, by remitting the non-resident tax withheld, you are essentially discharging your tax obligation to Canada on the rental income. However, if you complete and file a Section 216 tax return, you may have to pay less tax or you may not have to pay any tax at all, in which case you will be refunded the tax that was withheld and remitted during the year. The payer will have to file the NR4 on or before the last day of March following the calendar year to which the rental income reported applies. The section 216 return itself is due by June 30 following the year to which the rental income applies.
For cash flow purposes, you may want to consider having the non-resident tax withheld on the net rental income (i.e., the amount of rental income available after the rental expenses have been paid), instead of on the gross amount. To do this, you and/or your payer will have to file a NR6 slip to the CRA. You should send the NR6 on or before January of each year, or before the first rental payment is due. In practice, the NR6 form should be filed at the end of the year for the following year, to give the CRA adequate time to approve it. You should send it well before your first payment because your payer will have to continue withholding non-resident tax on the gross rental income until the CRA approves, in writing, your NR6 form. After the CRA approves your NR6, your payer can withhold the 25% non-resident tax on your net rental income. Your payer must continue to send the CRA the tax on or before the 15th day of the month following the month that the rental income relates to.
Example: tax on gross vs. net rental income
With regards to tax on the gross vs. net rental income, we have included an example. If your tenant pays you $1,000 per month in rent, without filing the NR6 form, the payer would have to remit 25% of withholding taxes of $1,000 to the CRA, which is $250, or $3,000 for the year. However, by filing the NR6 form with the CRA, the withholding tax would be reduced to 25% of your monthly net profit (rents collected minus rental expenses). If your rental expenses were $600, then the tax payment would be 25% of the $400 profit, which is $100, or $1,200 for the year. That’s a difference of $1,800!
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.