Foreign, Foreign Investments, Non-Residents, Rental Income

What Are the Tax Requirements for Non-Residents Who Earn Rental Income?

If you are a non-resident who owns and rents out property in Canada, you may be wondering about tax requirements for non-residents who earn rental income. Non-residents have an obligation to pay 25 percent tax on their net rental income.

Appoint a Withholding Agent

When non-residents own rental properties in Canada, they must appoint withholding agents. Withholding agents are responsible for sending 25 percent of the rent paid to the Canada Revenue Agency by the 15th of every month and the remainder to the property owner.

For example, if you have a property management company taking care of your property and acting as your withholding agent, the property manager remits 25 percent tax to the Canada Revenue Agency each month and sends you the rest of your payment.

Type XIII Taxes

For non-residents, income earned from rental properties and income from certain other investments is subjected to type XIII tax. Non-residents do not need to submit tax returns reporting income subjected to type XIII tax. However, non-residents may elect to report rental income by filing form T1159  (Income Tax Return for Electing Under Section 216).

For example, if you are a non-resident receiving income through rental payments and an annuity, you may opt to report your rental income under Section 216, but you do not have to report your annuity payments on that form. On the other hand, you may opt not to file a return for either type of type XIII income.

Paying Taxes on Net Rental Income

Electing to file under Section 216 gives non-residents the opportunity to deduct expenses and capital cost allowances from their rental income, which lowers their tax debt. For example, if a non-resident owns a property where the rent is $1,000 per month, he earns $12,000 in gross rent per year. Based on that figure, he pays $3,000 (25 percent) in taxes and pockets $9,000. However, if the non-resident spends money throughout the year on his property, those expenses can be used to offset his income.

For example, if you earn $12,000 in rental income but you spend $6,000 on property management fees, landscaping, or other relevant expenses, you may deduct the $6,000 in expenses from the $12,000 income. That leaves a remainder of $6,000 in net rental income; when that figure is taxed at 25 percent, your tax bill is $1,500.

Form NR6

To make this process easier, non-residents may submit a 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. Once the CRA receives this form, it allows your withholding agent to submit monthly taxes based on your net rent payments, rather than the gross.

For example, if a surprise expense takes up $800 of the $1,000 monthly rent payment, the withholding agent applies the 25 percent tax to the net rent of $200. If you submit Form NR6, you must file a Section 216 for that year.

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Other Resources:

From the CRA: Rental Income & Non-Resident Tax