Non-Residents Investing in Canadian Rental Properties
This article focuses on the tax implications of earning rental income from a property in Canada as a non-resident.
Part XIII Withholding Tax
When a non-resident is earning rental income from a real property in Canada, a withholding tax of 25% applies to the gross rental revenue. The payer (such as a tenant or a property manager) is responsible for withholding the tax. The payer must remit the withholding tax to the CRA on or before the 15th day of the following month—failure to remit this tax can lead to penalties and interests.
NR4
The payer also needs to submit an NR4 that includes the gross rental income and the tax withheld on or before the last day of March of the following year, or, in the case of an estate or trust, no later than 90 days after the end of the estate's or trust's tax year.
NR6
However, if you file an NR6, you can reduce the amount of withholding tax. You must elect to file under Section 216 of the Income Tax Act, and if the CRA approves the NR6 form, the payer is able to remit monthly withholding tax on the net income rather than the gross income.
The withholding tax must be paid to CRA on or before the 15th day of the following month. The NR6 form should be sent to the CRA on or before January 1steach year, or before the first rental payment of the year is due.
S216 Return
Suppose you have already remitted the 25% withholding tax on the gross rental income; by filing your personal tax return under Section 216 of the Income Tax Act, you can receive a refund of the difference between the total tax payable calculated in the personal tax return and the withholding tax already remitted.
S216 returns must be filed by June 30th of the following year. If you sell the property, the S216 return must be filed by April 30th of the year following the sale.
Please note, partnerships are out of the scope of this article as it requires additional filings and other complicated considerations. Non-residents selling Canadian real estate will be discussed in a separate article.
Penalties
If you do not file your Section 216 return by the deadline, the CRA may charge you a late-filing penalty and interest on the balance owing.
If you fail to remit your withholding tax, you can face penalties of up to 10%. If you make a late payment, the CRA can also charge penalties and interest on any amount you owe. If you fail to pay an amount, interest may be applied based on the prescribed interest rate.
If your NR4 return is filed late, you can face penalties of between $100 and $7,500, depending on how many slips are filed late and how many days late the return is filed.
If you have any questions or comments about this blog post, please feel free to contact us.
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