If you’re a non-resident owning rental property in Canada, understanding your tax obligations is crucial to staying compliant with Canadian tax laws. GTA Accounting has prepared this guide to help you navigate the process of filing non-resident taxes with the Canada Revenue Agency (CRA). Whether you’re a new property owner or have been renting properties for a while, this guide covers everything you need to know about reporting rental income, withholding taxes, and filing returns as a non-resident.
Why Non-Residents Need to File Taxes for Canadian Rental Income
Canada requires non-residents to pay taxes on income earned from Canadian sources, including rental properties. This is true even if you reside outside of Canada for the entire year. Proper tax filing ensures compliance and helps avoid penalties, fines, or interest on unpaid taxes. Non-compliance can lead to significant financial implications and legal issues. Moreover, it can also allow you to claim applicable deductions and maximize your rental income.
Essential Tax Obligations for Non-Resident Landlords
1. Withholding Tax on Rental Income
When a non-resident earns rental income from Canadian properties, the tenant or property manager must withhold 25% of the gross rental income and remit it to the CRA monthly. However, you can apply for a lower rate through specific forms, such as Form NR6. This allows you to remit tax based on your net rental income (gross rental income minus eligible expenses) instead of gross income, potentially saving you money. This withholding tax is mandatory unless you apply for a lower rate through specific forms.
- Form NR4: This form reports the income paid to non-residents and the tax withheld. The CRA requires an annual submission of this form, typically by March 31 of the following year.
For more details, visit the CRA’s page on withholding tax for non-residents.
2. Reducing Withholding Tax with Form NR6
To reduce the 25% withholding tax on gross rental income, non-residents can file Form NR6. By filing this form, you can remit tax based on your net rental income (gross rental income minus eligible expenses) instead of gross income. The CRA must approve the application before the start of the tax year or before the first rental payment of the year.
3. Filing a Section 216 Tax Return
Non-resident landlords can file a Section 216 tax return, which allows them to report rental income and claim deductions for property-related expenses. This type of return calculates tax on your net rental income instead of gross income, potentially resulting in a tax refund if the withholding tax exceeds the tax owed.
Essential information needed to file a Section 216 return includes:
- Gross rental income earned from the property
- Property-related expenses (e.g., repairs, management fees, insurance, property taxes)
- T4A-NR or NR4 slips (issued to report withholding taxes)
Learn more about Section 216 returns for non-residents.
4. Rental Property Expenses for Tax Deductions
When filing your non-resident tax return, you can claim deductions for certain expenses related to the rental property. These include:
- Property management fees
- Advertising costs
- Mortgage interest
- Repairs and maintenance
- Property insurance
- Utilities and property taxes
Proper documentation of these expenses is essential for claiming deductions and ensuring compliance with CRA requirements.
5. Calculating Capital Gains on Property Disposition
If you sell your rental property in Canada, you must report the capital gains to the CRA. Non-residents are subject to a 25% withholding tax on the gross sale proceeds, which can be reduced by filing for a Certificate of Compliance (Form T2062).
For more information on capital gains for non-residents, refer to the CRA’s guidelines on taxable Canadian property.
Filing Non-Resident Taxes for Rental Income with GTA Accounting
At GTA Accounting, we assist non-resident landlords in fulfilling Canadian tax obligations and optimizing their rental income. Here’s how we help:
1. Withholding Tax Compliance
We ensure that withholding tax is calculated correctly and remitted to the CRA on time. We also help file Form NR4, providing a complete summary of income earned and taxes withheld.
2. Assisting with Form NR6
If you want to remit tax based on your net rental income, we prepare and submit Form NR6 on your behalf, ensuring that all supporting documents are accurate and submitted before the deadline.
3. Preparing Section 216 Returns
We prepare and file Section 216 tax returns, maximizing your deductions and ensuring that you pay tax only on your net rental income. This approach can lead to significant tax savings and potential refunds if the withheld tax exceeds the calculated tax on net income.
4. Documenting Expenses and Deductions
Our team helps you document eligible expenses, ensuring you claim all possible deductions to reduce your taxable income. We provide guidance on what expenses qualify and how to keep accurate records.
5. Managing Capital Gains Tax
If you decide to sell your Canadian rental property, we assist with calculating capital gains, applying for a Certificate of Compliance, and filing the required documents to minimize tax implications.
Why Choose GTA Accounting for Non-Resident Tax Filing?
- Expert Guidance: With our extensive experience handling non-resident tax issues, we ensure compliance and minimize tax burdens, giving you peace of mind.
- Complete Service: We manage every aspect of your tax obligations, from withholding tax to Section 216 filings.
- Maximized Deductions: We ensure you claim all eligible deductions, maximizing your rental income and minimizing taxes.
Conclusion
Owning rental properties in Canada as a non-resident comes with specific tax obligations, but with the proper guidance, you can navigate the process smoothly and optimize your tax position. GTA Accounting’s comprehensive guideline helps you understand your responsibilities and provide a clear path to compliance with the CRA.
If you have rental properties in Canada and need assistance filing non-resident taxes, contact GTA Accounting today. We’re here to help you effectively manage your Canadian rental income and keep your taxes in check.