UPDATE FOR 2022/2023 TAX YEAR
Please read our blog post on the newly announced Underused Housing Tax (UHT) Return for non-residents, and certain Canadians, who own Canadian residential real estate. As a non-resident owing Canadian residential real estate, you will be required to file the UHT return.
Although the filing deadline is April 30th, 2023, CRA announced on March 28, 2023 that they will waive the late filing penalty as long as the return is filed or UHT is paid by October 31, 2023.
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Non-resident rental income tax applies if you are not a resident of Canada and earn rental income from a Canadian property. The lure of owing property and earning rental income is timeless. Moreover, Canada, and especially metro cities like Toronto and Vancouver have seen astronomical increases in property prices and rental rates. As such, the interest of non-residents looking to generate rental income in Canada has been more than ever recently.
Needless to say, tax consequences of earning rental income from Canadian property are different for non-residents versus what they would be for Canadian residents. Let’s dive in!
Non-Resident Rental Income Tax Reporting Requirements:
As a non-resident earning rental income from a Canadian property, the payer, such as the tenant or an appointed agent, has to withhold non-resident tax at the rate of 25% on gross rental income. The payer must remit the tax to CRA on or before 15th day of the following month that the rental income applies. Failure to remit the non-resident tax will result in penalties and interest on the non-resident tax amount.
Tax should be remitted on the non-resident account number, for example, NRK or NRF number. You can get this number by calling CRA (at 1-855-284-5946), to be set up only once.
NR4 Slips (with Canadian agent):
NR4 is a statement that shows the amount that is paid to a non-resident (gross rental income). As non-resident rental income tax is withheld and remitted, you are discharging your tax obligation to CRA on the rental income. The payer has to provide non-resident NR4 slips including the gross rental income and the tax withheld on an NR4 slip. The payer is required to submit NR4 to CRA on or before the last day of March of the following year to which the rental income applies.
Table to decide if you need to file an NR4 slip based on the total gross income and tax withheld:
|Total Gross Income
|Amount reported on NR4 slip
|Less than $50
|Less than $50
|No tax withheld
|$50 or more
|Tax withheld or no tax withheld
NR4 Pro Forma Statement (without an agent):
NR4 Pro-forma statement is requireed when the payer does not appoint an agent. The payer must submit NR4 Pro-forma statement to request an NR4 slip from CRA.
Pro-Forma statement includes:
- Non-resident’s name
- Non-resident’s account number
- Rental property address
- Gross rent for the year, an amount of tax withheld, remitted tax
- Mailing address to send NR4 slips for CRA, and
- Signature of non-resident if they are preparing the Pro-forma.
Deadline to submit the NR4 slips is March 31st, and a late-filed NR4 will result in a penalty of $100.
Section 216 Tax Return: Non-Resident Rental Income Tax Return
Electing Section 216 gives the opportunity to deduct the expenses and capital cost allowance from the rental income and calculate and remit taxes on net rental income instead of gross income. This would help with cash flow due to reduced tax payments. For example, if you earn $12,000 gross rent per year and spend $5,000 in property management fees, landscaping or other relevant expenses, you may deduct the $5,000 in expenses from the $12,000 income. That leaves a remainder of $7,000 in net rental income. The tax amount calculated on the net rental income would be $1,750 at a 25% tax rate.
Expenses to claim against the gross rental income:
- Advertising Cost
- Property Tax
- Legal/Accounting Fee
- Repair and Maintenance
- Home Improvements
- Salaries and wages (If you are making a payment to an employee who takes care of the rental property)
- Traveling cost
- Management Fees
If an individual has remitted their 25% withhold tax on their gross rental income, and they were unaware of these deductions, they can file Section 216, which will allow them to receive a refund of the difference between the total tax payable and the non-resident rental income tax already remitted.
The Section 216 return is due by June 30th of the following year to which rental income applies.
Minimize the tax withheld amount (NR6 Form):
By filing an NR6 form, the payer holds 25% tax on net amount of monthly rent. Without filling an NR6, tax would be remitted at 25% on gross rental income.
When the CRA approves your NR6 form, it will allow the payer to submit monthly taxes on net rent income rather than their gross rental amount. Tax amount must be remitted on or before 15th day of the following month.
NR6 is due on or before the first day of each tax year or when the first rental payment is due.
Disposing of a rental property for non-residents:
If you are selling your Canadian rental property, you must apply for clearance certificate by filling T2060 form. This form includes the details of the property, sellers and buyer’s information, actual cost base, proceeds of disposition to calculate gain/loss on the property. T2062A form is required only when depreciation claimed on the building portions can be recaptured.
Important filing due dates:
- NR4 – Submit to CRA by March 31st
- NR6 – Submit to CRA on or before the January 1st or before the date first rental payment due. You can file an NR6 past this date and CRA may approve.
- Section 216 Income Tax Return – Two years to file to pay tax on the net rental income
- Section 216 Return if NR6 filed – June 30th of the following year
If you are non-resident and own, or plan to own, a rental property in Canada, you can see from above that the requirements around non-resident rental income tax return can be quite specific and complex. At Think Accounting, we have several non-resident clients with Canadian rental properties whom we help out with their tax planning and annual tax filings. Reach out to us at firstname.lastname@example.org or 905-565-0095 and talk to one of our team members about how we can be of assistance.