Non-Resident Tax Filing

Canada Revenue Agency (CRA) imposes special withholding tax obligation on non-resident of Canada who owns investment/rental property in Canada. We can help you minimize the withholding taxes and be compliant with all the tax reporting requirements.

Rental Income from Canadian Real Properties

A non-resident of Canada who receives rental income from Canadian properties is required to remit withholding taxes to CRA on a monthly basis.

There are two options to comply with the withholding requirement:

Gross Rental Option

• Withhold and remit 25% of gross rental income to CRA on a monthly basis
• This withholding tax is almost always higher than your actual tax obligation. The non-resident taxpayer has up to two years after the reporting year to file a section 216 tax return to claim back any tax refund (if any)
• With mortgage payments and other rental expense payments, it may be very difficult from a cashflow perspective to meet the withholding requirement
• It may take CRA a very long time to process the section 216 tax return and issue any tax refund 

Net Rental Option (NR6 Election)

• Withhold and remit 25% of net rental income (after rental expense deductions), instead of gross rental income
• It requires annual NR6 election as well as a Canadian withholding agent (usually friends and family in Canada or professional property managers)
• This option usually significantly reduces the withholding amount or even completely eliminates it
• There are three tax filings each year in order to be compliant with this election

1. NR6 election by January 1st of the reporting year
2. NR4 reporting by March 31st of the following year
3. Section 216 tax return filing by June 30 of the following year

In most cases, we recommend our clients to choose the net rental option, as it is much easier on rental cash flow. Why give CRA a free loan?

Capital Gain from Disposition of Canadian Real Properties

The non-resident vendor is required to inform CRA of the sale within 10 days of the transaction closing. In addition, the purchaser is required to withhold 25% of the gross proceeds of the sale and remit it to CRA on behalf of the non-resident vendor. This requirement is penalizing for the non-resident vendor as it does not account for the purchase cost of the property.

Therefore, the non-resident vendor can file an election to request a Section 116 Certificate of Compliance. This election reduces the withholding tax to 25% of the capital gain realized from the sale, rather than the gross proceeds. Under this election, the non-resident vendor is required to file a Canadian tax return for the year in which the disposition occurred, which in most cases will result in additional tax refund for the non-resident.

You should hire a professional accountant to help you comply with the non-resident withholding and tax filing obligations. Failing to comply with the requirements may result in significant penalties and interests.

Call us to find out how can we help you comply with CRA requirements in an effective and cost-efficient way.