If you own Canadian rental property as a non-resident of Canada, you MUST withhold non-resident tax on the rental income each month.
The Canada Revenue Agency (CRA) requires by default that 25% of the gross rental income is withheld as a tax payment upfront, in a designated non-resident account. Failing to withhold non-resident tax results in a hefty, final tax assessment of 25% of the gross rent plus arrears interest. As various divisions are involved with non-residents, you cannot simply evade the tax withholding requirement and skip to only filing the tax return. Otherwise, the Part XIII & Non-resident Withholding Division will issue a penalty for missing this crucial step in the process.
25% of the gross rental income seems like a lot of tax! You’re correct it is! However, when you withhold non-resident tax, the CRA allows you to submit a unique non-resident tax return reporting only Canadian rental income and expenses where the final tax liability is based on the actual net income. When you pay tax on the net rental income (after all deductible rental expenses), you’ll ultimately pay way less than 25% of the gross rental income as tax. Essentially, the CRA wants to make sure a chunk of tax is paid up-front in case you don’t file a Canadian non-resident tax return as your final tax obligation or in case they can’t locate you across the world.
Luckily, the CRA provides a 2nd option to withhold reduced non-resident taxes, called the ‘net NR6 Form’.
The forms you’ll use as a non-resident depend on your income sources and activities in Canada.
Here are some common ones:
Form NR4: If you received Canadian income, you may receive an NR4 slip, which summarizes your Canadian income and the withholding tax, if any. You must report this income on your non-resident tax return.
Form NR6: Non-resident landlords earning rental income can choose to have it taxed at a reduced rate by filing Form NR6 with the CRA.
Form T1159: This is the Non-Resident Income Tax Return. You might need to fill this out to report various types of Canadian income and calculate your tax.
Important filing due dates:
NR4 – Submit to CRA by March 31st
NR6 – Submit to CRA on or before the January 1st or before the date first rental payment due. You can file an NR6 past this date and CRA may approve.
Section 216 Income Tax Return – Two years to file to pay tax on the net rental income
Section 216 Return if NR6 filed – June 30th of the following year
Don’t delay! Deadline is approaching. Contact Agrasoy Realty at info@agrasoyrealty.com ASAP to discuss your situation and submit your NR6 before it’s too late!
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