Need help? Non-resident tax returns in Canada →
If you own rental property in Canada but live abroad, the tax rules are different from those for residents, and the default outcome is expensive. This guide follows the full life of a non-resident owner’s rental property, from the first rent cheque to the sale, using one illustrative example.
Are you a non-resident for tax purposes?
Residency for tax is about your residential ties to Canada (home, spouse or dependants, and personal property), not about citizenship. People who leave Canada and sever their significant ties generally become non-residents, and the Canada Revenue Agency (CRA) can treat you as one even when you spend time here. If you are unsure, settle it first, because every other rule below depends on it. Residents follow our rental income guide instead.
The default: 25% withholding on gross rent
Rent paid to a non-resident is subject to Part XIII tax of 25% on the gross rent, not on profit. Whoever pays the rent, a tenant or a property manager, must withhold the 25% and remit it to the CRA by the 15th of the following month. The payer reports it on an NR4 slip, due by March 31 of the next year. The landlord can’t simply ignore this: the payer becomes liable for tax they should have withheld.
Worked example
Assume $36,000 of rent in the year ($3,000 a month). By default, $9,000 (25%) is withheld and sent to the CRA, even if your real expenses were $20,000 and your profit only $16,000.
Reducing the withholding with Form NR6
The NR6 election lets you ask the CRA to withhold on your net rental income instead of the gross. You file it, with your estimate of the year’s rent and expenses, before the first rent payment of the year (or as soon as possible), and you undertake to file a Section 216 return afterward.
In our example, an accepted NR6 would let the payer withhold 25% of an estimated $16,000 of net income, about $4,000 instead of $9,000. The undertaking matters: if you do not file the return on time, the CRA can cancel the arrangement for future years.
The Section 216 return: your refund (or balance)
A Section 216 return recalculates your Canadian tax on net rental income, using ordinary graduated rates rather than a flat 25%. If you filed an NR6, the return is generally due by June 30 of the following year; without an NR6, you have up to two years, but you should not wait, because your refund is waiting.
- Deductible expenses include mortgage interest (not principal), property tax, insurance, repairs, property management and condo fees.
- You may claim capital cost allowance (CCA), but it generally cannot create or increase a rental loss on the return, and it creates recapture on sale.
- Most personal credits are not available to non-residents.
In the example, tax on $16,000 of net income at graduated rates is typically well below $4,000, so part of the withholding would normally come back as a refund. Your actual numbers will differ.
Selling the property: the Section 116 clearance
When a non-resident sells Canadian real estate, the buyer is on the hook if the right amount is not withheld. You should notify the CRA, generally using Form T2062, within 10 days of the sale and pay tax on the gain to obtain a clearance certificate. Without it, the buyer may need to withhold 25% of the sale price for non-depreciable capital property, or 50% for depreciable property, which ties up your cash for months. Quebec may have a parallel requirement with Revenu Québec, so confirm it early.
If you are a US owner
Canadian tax paid on the property can usually be claimed as a foreign tax credit on your US return. Read our guide for US citizens and green card holders and keep both countries’ returns consistent.
Common mistakes
- Not withholding at all, leaving the tenant or manager exposed.
- Filing the NR6 late, or never filing the Section 216 return.
- Forgetting that CCA has recapture consequences when you sell.
- Waiting until the sale to find out you needed a clearance certificate.
What to gather
- Lease(s) and rent receipts.
- Mortgage interest statements, property tax and insurance bills.
- Property manager statements and any NR4 slips.
- The purchase and closing documents (for the cost base).
This guide is general information, not advice for your situation, and rates and thresholds can change. Our tax professionals review every non-resident file. See our personal tax returns service or contact us for a quote.