How do non-residents of Canada file taxes on rental properties?

Tax processing core process - rental properties owned by non-tax residents

As a non-resident for tax purposes, your rental income in Canada is subject to federal tax (not provincial tax). Filing your taxes involves the following two steps:

1. A 25% withholding tax will be levied on the gross rent (to be paid monthly on time).

• Procedure : Your tenant or property manager is required to withhold 25% of the total rental income each month after receiving the rent and submit it to the CRA by the 15th of the following month.

• Year-end filing : You can choose not to file taxes . In this case, the 25% withholding tax already paid is the final tax amount, and you cannot deduct any rental costs (such as mortgage interest, property taxes, maintenance fees). This is a simpler but often more expensive method.

2. Apply for a tax refund based on the actual expenses incurred (declare at the end of the year, refund for overpayment, and additional payment for underpayment).

• Year-end filing : At the end of the year, you need to file a special "Section 216" tax form. The calculation method is: subtract the tax payable based on net income from the 25% tax withheld for the whole year, with refunds for overpayments and additional payments for underpayments .

• Important restriction : You must file a Section 216 tax return within 2 years of receiving the rental income , or you will not be eligible for any tax refund.

📝 Core Table: The Role of NR6 and NR4

To achieve "paying taxes on net rent" and complete the filing, there are two key CRA forms you must understand.

NR6 Form: Application for "Net Withholding"

• Core Function : This is your tool for requesting withholding tax based on "net rent" instead of "gross rent". Submitting this form requires additional processing time.

• Submission timeline : You need to start preparing your submission several months before January 1st each year , and you must receive the CRA's approval result before the first rent payment . If you miss the deadline, 25% of the total rent will still be withheld until the application is approved.

• Key requirement : You need to designate a Canadian resident (such as a relative, friend, or property manager) as your "agent," who will sign this form and assume responsibility for remitting withholding tax.

NR4 Form: "Tax Payment Certificate" and Rental Information Declaration

• Core Function : This is an information declaration form that records the total rent paid to you for the year and the total amount of taxes withheld .

• Reporting Obligation : Your Canadian agent (such as a tenant or property manager) must submit an NR4 information form to both you and the CRA by March of the following year. This form is an important basis for your Section 216 filing.

  
  

💡 Recent changes regarding tenant obligations

Previously, tenants were obligated to withhold taxes and were personally responsible for it, even if they were unaware that their landlord was a non-resident. A court case that ruled in favor of tenants who failed to withhold taxes has drawn widespread attention.

To address this issue, the federal government passed Bill C-15 , which, effective August 12, 2024 , clarifies that individual tenants renting residential properties for their own residence are no longer obligated to withhold taxes from non-resident landlords . This means that the responsibility for compliance now more clearly falls on the non-resident landlord or their Canadian agent .

🚀 file taxes on rental properties: Action Steps Suggestions

1. Designate a Canadian agent : If you have not yet designated one, you should find a trusted resident in Canada (such as a property manager) to act as your agent in order to file forms such as NR6 and manage tax matters.

2. Assess and choose your filing method : Based on your rental income and projected expenses, determine whether it is easier to pay taxes on gross rent or more cost-effective to file a Section 216 return for a refund (in most cases, the latter is better).

3. Submit NR6 on time (if required) : If you wish to have tax withheld on net rent, be sure to submit NR6 at the beginning of each year or before the first rent payment.

4. Keep all expense receipts : Properly preserve all expense receipts related to the rental property, such as mortgage interest statements, property tax bills, insurance policies, maintenance invoices, etc., so as to accurately calculate net income at the end of the year.

5. Ensure compliant filing : Monitor whether your agent is filing NR4 on time. If you are filing S216, it must be completed by June 30th of the following year, and you should ensure it is filed within two years of the rental income to avoid missing out on tax refund opportunities.

   
   

We recommend consulting a Canadian CPA who specializes in non-resident taxation. You can place your order directly through our service link for 【 Non-Resident NR4 Tax Refund Application 】. 【 Non -tax payment + tax refund package 】