Non Resident Tax Obligations in Canada
If you are not a Canadian resident, but own a rental property in Canada, there are typically a few more steps required to collect your rental income. This can be an intricate process, especially without the aide of an accountant or property manager. Luckily, we've created a step by step guide to help get you started.
An Overview of Non-Resident Rental Income Taxes
The Canadian Revenue Agency (CRA) requires that all non-resident landlords remit 25% of their rental income to the CRA each month. Additionally, you'll need a withholding agent in Canada to collect your rental income. If you have a property manager or accountant, they should be the withholding agent. Otherwise, the tenant often becomes the withholding agent. Once the withholding agent receives rent, they will need to withhold 25% of your rental income and directly remit this to the CRA on or before the 15th of each month. Further, there are two remittance options. You may either remit 25% of your gross income or your net income.
Withholding from Gross Rental Income
In standard practice, the CRA will require 25% of your gross rental income. To begin remittances:
You will need to open a non-resident tax account. Your withholding agent can call the CRA at 1-855-284-5946 to do so.
After your account has been opened, the CRA will mail Form NR75, Non-Resident Tax Account Information, which will include a non-resident tax remittance voucher that should be returned with the first remittance. Your withholding agent can remit via online banking, CRA My Payment, pre-authorized debit, wire transfer, through their financial institution, or via mail with a cheque and the remittance voucher included.
At the end of the tax year, your withholding agent will need to fill out an NR4 slip summarizing the total rental income earned and remittances made during the year. They will need to provide this form to the CRA, as well as provide you two copies, before March 31st of each year.
Withholding from Net Rental Income
Alternatively, you can elect under Section 216 to remit only 25% of your net income. For example, if you pay property management fees, you can deduct these fees from your rental income before applying the 25% non-resident tax. By doing so, you are choosing to report your rental income on a separate Canadian tax return as well. This process is more nuanced:
Fill and submit form NR6 to the CRA. This will need to be submitted on or before January 1st of each year, or before the first rental payment is due. You will need a SIN or Canadian tax number for this form. If you do not have a Canadian tax number, you will need to complete Form T1261, Application for a Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents. Your agent will need to continue withholding 25% of your gross rental income until the CRA has confirmed receipt of this form.
Once the CRA has approved the NR6, your withholding agent will only need to remit 25% of your net rental income on the 15th of each month.
After the end of the tax year, you will need to submit a Section 216 return. You will need to file Form T1159, Income Tax Return for Electing under Section 216 for that year, regardless of whether you are expecting a refund or have no further taxes to remit. This will be due before June 30th of the following year. If you have multiple properties, they must all be included in one Section 216 return.
Contact Us
Undoubtedly, the tax obligations for a non-resident landlord can be difficult to navigate. If you've appointed a property manager, you can rest easy knowing your tax obligations will be filed and reported properly. Additionally, and from most property management companies, Clavis Property Management charges no premiums or further fees for NR4 or NR6 reporting.