Non-Resident Earning Rental Income in Canada

Non-Resident Earning Rental Income in Canada

 In Non-Residents, Real Estate

Are you a non-resident earning rental income in Canada?  You may be surprised to learn that you have tax reporting obligations, even when you have a net rental loss!

In this blog, I will explain the Canadian tax reporting obligations for non-resident landlords.

This is part two of a 3-part blog series on non-resident buying, renting and selling real estate in Canada.  (Did you miss part 1? Read more about non-resident selling here.)

Tax obligations for a non-resident earning rental income can be broken down into 2 steps:

1)      Withholding Tax

  • Non-residents are subject to a withholding tax of 25% on gross rental income.
  • Withholding tax is payable to CRA on the 15th of each month.
  • If you have a property manager, you should ask if they will remit these payments to CRA on your behalf and issue you an NR4 slip at year end.
  • TIP: If you have significant rental expenses, then consider applying to withhold tax on your net rental income instead of gross rental income.  This will help improve your cashflows.  An accountant can help you file an application with CRA using Form NR6.

2)      Income Tax Return

  • If taxes are withheld on net rental income using Form NR6, then you must file a Canadian tax return.
  • If taxes are withheld on gross rental income, then you are not required to file a Canadian income tax return.
  • TIP: Even when a return is not required, non-residents may elect to file a Section 216 tax return with CRA.  It is usually advantageous to file this special tax return and claim a tax refund if you have paid for eligible rental expenses during the year. To learn more about the types of expenses you can be deduct against rental income, check out this past post.

What Should I do if I was Unaware of my Tax Obligations?

Failure to comply with your tax obligations can result in significant penalties and interest imposed by CRA.  If you find yourself in this situation, please contact a tax professional.  An experienced professional can prepare the necessary filings and help you minimize the taxes, penalties and interest imposed by CRA.

Example

I recently worked with a non-resident who left Canada many years ago.  She kept her Oshawa home when she moved and rented it out for the past 5 years earning over $100,000 of gross rental income.  With the recent uptick in the Durham real estate market, she decided to sell her rental property.

She was surprised to learn that CRA would not only require her to pay the outstanding withholding taxes (i.e. 25% x $100,000), but also impose penalties and accrue interest for all 5 years. Fortunately, in this situation, we were able to take advantage of certain provisions to reduce the taxes, penalties and interest for our client!

  • TIP: When you sell a rental property, CRA will confirm whether you fulfilled your tax obligations as a landlord. If you have not met the obligations discussed above, CRA may require a portion of your sales proceeds be held back until you are compliant!  (Learn more here)

At Rethink CPA, we have the expertise to help non-residents and withholdings agents met their Canadian tax obligations.  If you have questions about buying, renting or selling real estate as a non-resident, please contact us for a consultation.


The content of this blog is intended to provide a general guide to the subject matter. Professional advice should be sought about your specific circumstances.

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