As a non-resident of Canada, passive income (dividends, interest, rentals, etc.) paid or credited to you are generally subject to 25% withholding tax (Part XIII tax). This withholding represents your tax liability to Canada for such income. This could nevertheless be reduced by the tax treaties in force.

Tax obligations

No Canadian income tax return is required when these amounts are paid to you. However, for rental income from a property located in Canada, you have the option of declaring this income in a “Income tax return for the election provided for in section 216” of the Income Tax Act. . In making this choice, be aware that your rental income will be taxable as if you were a resident of Canada, that is to say by following the progressive tax schedules. In addition, it will rather be the net rental income (income after expenses) that will be subject to tax.

Reporting requirements

By making the election provided for in article 216, the return must be filed no later than two years following the end of the year in which you earned the rental income (December 31, 2021 for rental income relating to 2019 ).

The deadline will be shortened if you complete Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or receiving Timber Royalty to request that the 25% withholding tax otherwise applicable are made on the net rental income and not gross. This form must be produced annually before January 1 or before the first rental payment.

In order for it to be accepted by the Canadian tax authorities, you must have a Canadian agent (a person resident in Canada) who will be responsible for collecting the withholding tax. Withholding taxes must be remitted no later than the 15th day of the month following the payment (February 15 for a payment received in January, for example). It should be noted that any withholding overpaid will be refunded with the section 216 declaration (whether or not you opt for NR6), during the final tax calculation.

Finally, regardless of the option chosen, a form NR4, Non-resident tax withholding, remitting and reporting must be prepared annually no later than March 31 (March 31, 2021 for income earned in 2020, for example) and will report gross income earned and non-resident tax withheld.

To know more

If you would like to know more, do not hesitate to make an appointment with one of our tax experts or to drop your file on our virtual platform. We are used to dealing with this type of situation and have the expertise to assist you!

Recommended articles

About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.