Non-Resident Tax on Rental Properties in Canada

Are you a non resident who owns real estate in Canada?  If the answer is yes, then you must read this article.  In this short write-up, I give you 6 Tips on “Non Resident Tax on Rental Properties in Canada.”

If you are a non resident of Canada and if you own a rental property in Canada, It’s really important that you go through this article. Here, you’ll find out everything that you need to know about non resident tax on Canadian rental properties.

Tax Account Number:

The first thing you need to know is how to obtain a tax account number. It’s really important to get a tax account number because the tax account number is used to track your tax filings by the Canadian Revenue Agency. If you already have a social insurance number that will serve as your tax account number. If you don’t have a social insurance number, simply call the International Tax Services office to obtain one and it’ll issue you a tax account number right over the phone.

To find out the phone number for the International Tax Services office, simply go to the Canada Revenue Services website and you’ll find it there.

Withholding Tax:

The second point that you need to know about non resident tax on rental properties in Canada is withholding tax. Withholding tax applies at a rate of 25% on the rents that you collect here in Canada. Let’s take a numerical example into account.

Assume that you are renting a Condo and you’re collecting a thousand dollars as rent towards the Condo. The withholding tax will therefore be 25%; or $250 for the month.  This $250 withholding tax must be remitted by the 15th of the following month. So if you’ve collected the withholding tax in January, you have to remit it by the 15th of February.

Making Payments for the Withholding Tax:

This part is quite easy; you simply write a cheque and make it payable to the ‘Receiver General of Canada’. On the back of the cheque write your name, tax account number, and the month & year to which the withholding tax applies to (for example, January 2011). To obtain the mailing address of where to send the cheque, go to the Canada Revenue Agency’s website and you’ll find it there.

The Waiver for Non-Resident Tax on Rental Properties Canada:

The next thing that you need to know about non resident tax on Canadian rental properties is the NR6 form or the Waiver. 25% withholding tax is really high and I’m sure you were surprised when you found out. But there is a way to reduce that withholding tax to a lower rate. Hence, you need to file the NR6 form or the Waiver. You can obtain this Waiver, again, from the CRA’s website.

On the Waiver you simply disclose the expected gross rents you plan on collecting in the next 12 months, and the expected expenses you plan on having in the next 12 months. I recommend that you file for the Waiver in around October or November so that way you can receive it before January of the following year.

Unfortunately, the CRA does not tell you how much it is going it reduce the withholding tax by; 10%, 5%, etc. If I knew the formula, trust me, I’d share it with you. Still, you should apply even if you don’t know how much the withholding tax will be reduced by, because you will certainly save tax.

The NR4 Slip:

The fifth point you need to know about non resident tax on rental properties in Canada is how to obtain an NR4 slip.  For those of you who don’t know, an NR4 slip simply reports the gross rents you collected and the total withholding tax that you remitted to the Canadian Revenue Agency. You have to collect this form from the Canadian Revenue Agency by no later than March 31st of the following year. If you don’t obtain it by this time you’ll be subject to penalty, which is something you want to avoid.

Annual Tax Returns:

The sixth point that you should be aware of is filing an annual tax return. To do this you could either hire a professional to take care of it or you could do it yourself. The Section 216 non resident tax return for rental properties is quite simple. It discloses the gross rents you’ve collected and the expenses you’ve incurred.  Expenses include such things as:

• Property tax
• Repairs & maintenance
• Utilities
• Insurance
• Condominium fees, and
• Fees paid to a property manager, if you have one.

The difference between the gross rents collected and the expenses incurred is equal to the net income, on which income tax is levied.

The rate of tax in high, at 48%, but there are tax credits that you may be entitled to. The withholding tax that you remitted previously will reduce the total taxes that you owe. The Section 216 tax return for the whole year is due by the 30th of June the following year. So, for 2011, it’s due by June 30th, 2012; for 2012 it’s due by June 30th, 2013; and so forth.

While this might sound a little biased I strongly recommend that you use the services of a professional such as myself to prepare your Section 216 return just to make sure that you’re not missing out on any deductions and that it’s done properly.

I hope you found this article about non resident tax on rental properties in Canada useful and I will keep posting more relevant information here, so keep coming back for more.  For more information regarding additional tax implications for becoming a non-resident of Canada, please consult our article on becoming a non-resident of Canada.

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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