Taxes for Non-Residents Owning Canadian Rental Property

Canadian residents pay tax on their worldwide income. Non-residents usually do not file a Canadian tax return, but there are important exceptions—most notably when a non-resident owns and earns income from a Canadian rental property.

Withholding tax on rental income

Rental payments made to non-residents are generally subject to a 25% withholding tax. In practice, this amount is typically withheld and remitted to the Canada Revenue Agency (CRA) by the property manager or the tenant. Remittances must be sent to the CRA by the 15^th day of the month following the month in which the rent was paid.

The CRA refers to the person responsible for withholding and remitting the tax as an “agent.” An agent can be any Canadian resident acting on behalf of the non-resident owner—this might be a professional property manager but could also be a family member, friend, or other representative. The agent must be resident in Canada.

If withholding is not arranged, the non-resident owner can face interest on arrears charged by the CRA and potentially penalties for failure to remit required tax.

Filing a form NR6

A non-resident landlord can apply to the CRA by filing Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty. This form lets the owner estimate next year’s rental income and allowable expenses.

If the CRA approves the NR6, the withholding requirement may be reduced so that 25% is applied only to the projected net rental income (that is, gross rental income minus allowable expenses) rather than to gross receipts. Because approval takes time—and because the withholding for January is due by February 15—filing the NR6 well in advance is recommended.

NR4 slips

Your Canadian agent should prepare an NR4 slip, Statement of Amounts Paid or Credited to Non-Residents of Canada, which records gross rental income and the tax withheld and remitted to the CRA. Like other Canadian tax slips, an NR4 documents income paid to a non-resident and the taxes withheld on that income.

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An NR4 slip must be filed with an NR4 Summary to the CRA by March 31 each year. The information on the NR4 is then reported on the non-resident’s Canadian income tax return. Depending on the tax rules in the owner’s country of residence, the same income and some or all of the expenses may also need to be reported on the foreign tax return.

Taxes paid to the CRA can often be claimed as a foreign tax credit on the non-resident’s home country tax return to prevent double taxation, subject to the rules of that country.

Electing under section 216 of the Income Tax Act

Most non-resident owners of Canadian rental property choose to file a Canadian tax return under section 216 of the Income Tax Act. Electing under section 216 means the owner is taxed on net rental income—after deducting allowable expenses—instead of simply accepting the flat 25% withholding on gross rental receipts.

Because expenses related to operating and maintaining the rental property can be deducted, net rental income is typically substantially lower than gross rental income. Non-residents are not subject to provincial tax on rental income, and Canada’s progressive marginal tax rates tend to reduce the effective tax burden on lower levels of net income. For many non-resident landlords, filing a section 216 return results in a net tax liability well below the 25% withholding rate and often produces a refund.

The usual deadline to file a section 216 return is June 30. If you sold the rental property during the year and previously claimed capital cost allowance (CCA) on it, you must file by April 30. If tax is owing, the balance due is payable by April 30 regardless of which filing deadline applies.

Selling a rental property

When a non-resident sells Canadian real estate, the default withholding on the sale proceeds is 25% of the gross sale price. To reduce this withholding, the seller can submit form T2062, Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. If capital cost allowance was claimed in prior years, the seller may need to file form T2062A instead.

The CRA generally aims to process T2062 or T2062A applications within about 30 days, but these forms cannot be submitted until there is an actual sale with a signed purchase and sale agreement. If the CRA approves a reduced amount, it will typically set withholding at 25% of the taxable capital gain (and up to 50% on any recaptured CCA). The seller should provide the approved certificate to their legal representative so a larger portion of the sale proceeds can be released at closing.

After the sale, the non-resident seller must file a Canadian tax return reporting the capital gain and will often receive a refund for part of the withholding tax. If the seller also received rental income in the same year, they may need to file multiple returns to report both rental and disposition items.

Summary

Owning a rental property as a non-resident brings additional tax complexity compared with resident ownership. Important obligations include withholding, NR4 reporting, possible use of Form NR6 to reduce remittances, electing under section 216 to be taxed on net rental income, and using T2062/T2062A when disposing of property. Understanding these requirements ahead of time—or consulting a tax professional—can help non-resident owners meet their Canadian tax obligations and avoid unexpected interest or penalties.

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