Non-Residents of Canada owning Canadian Rental Property
The idea of owning property and generating a rental income is very appealing to most people. This is especially true in major cities across Canada like Toronto and Montreal, where rentals rates are high. As a result, many non-residents look at Canada as a prime place to buy property and generate rental income.
For any non-resident’s interested in taking on such an endeavour in Canada, there are a few things to keep in mind to avoid any unforeseen tax consequences. Most non-residents who own property and earn a rental income in Canada may be unaware of the Canadian non-resident withholding tax requirement and filing obligations. It is important to be aware and properly meet these requirements as there can be significant interest and/or penalties imposed by the CRA for failing to do so.
Non-Resident of Canada owning Rental Property – Reporting Requirements
There is a non-resident rental income tax reporting requirement, where the CRA imposes a 25% withholding tax rate on the gross rental revenue non-residents’ receive. The responsibility falls on the payer, such as a tenant, or a property manager to withhold the non-resident tax at the rate of 25%. The payer must remit the withholding tax to CRA on or before the 15th day of the following month the rental income applies. Failing to remit the tax will lead to penalties and interests on the non-resident tax amount.
Another thing to keep in mind is the NR4 slip which is a statement showing the amount paid to a non-resident (gross rental income). The payer needs to provide non-resident NR4 slips including the gross rental income and the tax withheld on a NR4 slip. The NR4 needs to be submitted to CRA by the payer on or before the last day of March of the following year to which the rental income applies.
Non-Resident of Canada owning Rental Property – How do I Minimize the Withholding?
There is good news though. The tax withholding amount can be reduced under certain conditions by filing an NR6 form. By doing this, the payer holds 25% on the net amount of monthly rent. Otherwise, the tax would have to be remitted at 25% of the gross rental income. Once the CRA approves the NR6 form, the payer is able to submit monthly withholding taxes on net rent income instead of the gross rental amount. Keep in mind that the NR6 form is due on or before the first day of each tax year or on the first day of rental payment.
Making use of the NR6 requires a taxpayer to elect under Section 216 of the Income Tax Act. What this means is that you need to file a specific tax return, by a specific due date.
If you weren’t aware of these deductions, and have remitted 25% withhold tax on your gross rental income, you can file a Section 216 tax return. By doing so you, you can receive a refund of the difference between the total tax payable and the non-resident rental income tax already remitted. You have until June 30th of next year to file the Canadian Income Tax Return for Electing under Section 216.
If you are a non-resident of Canada for tax purposes, and own or plan to own, a rental property in Canada, there are many requirements around non-resident rental income. At R&A Tax Law we have the experience and the expertise to help both non-residents and withholding agents with their tax needs and all filing requirements. Call us today to learn more!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.