The Canadian Income Tax Act has rules applying to rental income and the sale of property owned by a non-resident (for tax purposes) of Canada. This may include foreign domiciled owners as well as former Canadian residents who may now be expats. For purposes of this site the focus will be on the taxation of real estate assets.
Note that the Canada Revenue Agency reporting requirements are complex and will vary with each individual’s situation, and therefore always seek professional tax advice.
Taxation of Rental Income in Canada
- Firstly, the annual tax reporting of rental income and expenses can be completed with the S.216 Tax return. There are different scenarios for the withholding and reporting of the rental income. An NR4 should be filed with CRA for each year by March 31 after the calendar year to summarize the rental revenue and withholding tax paid.
- Gross Rental income is normally subject to a withholding tax of 25% to be remitted to CRA by the tenant (or an agent). There may be penalties and interest assessed if the required filings are not completed within 2 years of the due date. This can be the final tax.
- A second scenario is after the year-end, a personal tax return can be done based on the net rental income of the property. That would be gross revenues minus property tax, utilities, R&M, insurance, interest and other eligible expenses. If the tax owing is less than any installments or tax withheld, a refund may be claimed.
- A third scenario is if a NR6 is filed before the start of the tax year by the tenant or agent, a T1 can be filed after the year end based on Net income. Income can be estimated on the form and 25% of the estimated net rental profits can be remitted as tax installments.
Sale Of Canadian Real Estate By A Non-resident Of Canada:
When the non-resident of Canada sells their Canadian property, they must be subject to a withholding tax of 25% of the gross proceeds. However, if the form T2062 is filed with the appropriate information concerning the property capital gain, and a Certificate of Compliance is received, then the withholding will be 25% of the net gain. This should be done no later than 10 days from the closing of the transaction or penalties may be applied.
The non-resident must file for the certificate of compliance from the CRA for either a proposed sale, or a completed sale, within 10 days after the date of disposition. The T2062 form, as well as supporting documentation and capital gain computation must be prepared, or the request could be rejected. Our firm specializes in the preparation of these applications, and we can assist you in these matters. After the year-end, a personal T1 return can be filed to recover any refund for the 25% tax withheld, as now selling commission and legal and accounting fees may also be deducted. Due to the information required and the complexity of the process, it is strongly advised that professional tax advice is obtained from persons experienced in this area.