Non-Resident Tax Returns
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Generally, Canadian income received by a non-resident is subject to Part XIII tax or Part I tax.
Rental income and non-resident tax
If you receive rental income from real or immovable property in Canada, the payer or agent (such as the property manager) must withhold non-resident tax of 25% on the gross rental income paid or credited to you.
The payer must pay the tax on or before the 15th day of the month after the month the rental income is paid or credited to you. You should discuss this with your payer to make sure they withhold and remit the correct amount of non-resident tax to the CRA on your behalf.
If the payer does not withhold and remit this non-resident tax, the CRA will charge compound daily interest on the amount not withheld and remitted. The CRA may also charge a penalty.
The payer has to give you two copies of slip NR4, Statement of Amounts Paid or Credited to Non-Residents of Canada, showing the gross amount of rental income paid or credited to you during the year and the amount of non-resident tax withheld. The payer must also send the CRA a completed NR4 information return.
Generally, the non-resident tax withheld is considered your final tax obligation to Canada on the rental income. However, if you elect under section 216 of the Income Tax Act, you may pay less tax. You may also receive a refund for all or part of the non-resident tax withheld.
What is a section 216 election?
As a non-resident of Canada, you can choose to send the CRA a separate Canadian tax return to report your rental income from real or immovable property in Canada. Choosing to send the CRA this return is called electing under section 216 of the Income Tax Act.
A Section 216 return is separate from any other return you have to send the CRA for the year.
Why elect under section 216?
Electing under section 216 allows you to pay tax on your net Canadian-source rental income instead of the gross amount. If the non-resident tax that the payer withheld is more than the amount of tax payable on your Section 216 return, the CRA will refund the difference to you.
Withholding on net rental income (Form NR6)
If you elect under section 216, you can elect to have tax withheld on your net rental income instead of the gross amount.
To have non-resident tax withheld on your net rental income, you (or each non-resident who is a member of a partnership) and your agent have to complete Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, and send it to the CRA for approval.
After the CRA approves Form NR6
After the CRA approves your Form NR6, your agent can withhold non-resident tax of 25% on your net rental income (that is the amount of rental income available after the rental expenses have been paid). Your agent must pay the tax on or before the 15th day of the month after the month the rental income is paid or credited to you. You should discuss this with your agent to make sure they withhold and remit the correct amount of non-resident tax to the CRA on your behalf.
If your agent does not withhold and remit this non-resident tax, the CRA will charge compound daily interest on the amount not withheld and remitted. The CRA may also charge a penalty.
The agent has to give you two copies of an NR4 slip showing the gross amount of rental income paid or credited to you during the year and the amount of non-resident tax withheld. The agent also has to send the CRA a completed NR4 information return.
What is a section 217 election?
If you are a non-resident, the tax withheld is usually your final tax obligation to Canada on this income. However, you can choose to file a Canadian return to report certain types of Canadian-source income by electing under section 217 of the Income Tax Act.
By making a section 217 election, you pay tax on your Canadian-source income at the same rate as Canadian residents and may receive a refund for all or part of the non-resident tax withheld.
You will benefit from electing to file a return under section 217 if the total tax payable on line 43500 of your return is less than the tax you would otherwise pay if you did not make this election.
When the Canada Revenue Agency (CRA) assesses your return, your election under section 217 will only be taken into account if it is beneficial to you.
Reducing tax withheld
If you want to make a section 217 election on eligible income that you have not yet received, you can apply for a reduction to the nonresident tax the payer would otherwise have to withhold.
To do this:
- •Complete Form NR5, Application by a Non-Resident of Canada for a Reduction in the Amount of Non-Resident Tax Required to be Withheld
- •Send it to the CRA for approval on or before October 1 or before the first payment is due
The CRA will use your completed Form NR5 to determine if a section 217 election will benefit you. If the election is beneficial for you, the CRA will authorize your Canadian payer(s) to reduce the amount of non-resident tax withheld from your benefits during the approval period.
If the CRA approves your NR5 application
You must file a section 217 return for each year of the period covered by the approved Form NR5.
An approved Form NR5 is valid for 5 tax years. However, if your situation changes during this period, you may have to file a new Form NR5.
If the CRA does not approve your NR5 application
If the CRA does not approve your NR5 application or you do not send an application for the year, you may still choose to file a section 217 return. This allows you to apply for a refund of all or part of the non-resident tax withheld on your eligible section 217 income.
Need assistance with Non-Resident Tax Returns? Contact us today at 905-605-4775.