Minimize your tax exposure for non-resident rental income with NR6 Elections and Section 216 filings
The NR6 form in Canada is used by non resident investors who earn rental income and want to avoid remitting 25% of their gross rental income to CRA on a monthly basis. This form allows them to outline their projected expenses for the year and if approved only remit 25% of the net rental income as opposed to 25% of the gross on a monthly basis.
* We recommend applying 3 month before year end so CRA approves the application before the January Withholding tax is due.
rental income from Canada?
Rental income is a common type of income subject to Part XIII tax. You do not file an income tax return to report the rental earnings, unleash you made an NR6 election. The Part XIII tax (25% of gross rent) is your final tax obligation. However, you can elect under section 216 to file an income tax return for your Canadian rent income to claim any over payments back.
By default, you cannot. For non-residents, Canadian rent income is subject to Part XIII tax. The 25% of gross rent is your final tax obligation. Therefore you cannot get a refund if you end up with a rental loss. However, if you elect under section 216 to file rental income return, it is possible to get back any excess tax withheld.
When you elect under section 216, you can also elect to have tax withheld from your net rental income, instead of from your gross rental income. This reduces cash flow pressure throughout the year. You will also be entitled to a refund if the taxes withheld exceeds the actual tax payable when you file your rental income tax return.
As a non-resident with Canadian rental income, use Form NR6 to elect under Section 216 of the Canadian Income Tax Act. This form allows you to request withholding tax on net rental income (considering estimated rent expenses) instead of on gross rent and commit to filing a Canadian income tax return. Submit NR6 before January 1 of each year or before the first rental payment date.
If CRA approves the NR6 request for the Canadian payer to withhold tax from net rental income, you must file a Section 216 return. This return reports your actual rental income and expenses and reconciles actual tax payable with taxes withheld during the year.
CRA will invalidate the election and require tax to be withheld from your gross rental income (which is the default treatment). If insufficient tax was withheld during the year, you will need to pay the difference to CRA. Therefore it is crucial to file a section 216 return by the due date if you elect.
When filing a Section 216 return in Canada as a non-resident property owner, you can deduct specific expenses related to your rental property. These may include
Ensure expenses are directly related to earning rental income and maintain detailed records and receipts for CRA verification.
On the Section 216 return, you will calculate your net rental income after the rent expenses are claimed. The net rent income is then subject to a graduated tax rate table. The federal tax starts at 15% of income up to $50,197. You also need to pay a non-resident surtax equaling 48% of the federal tax. In the end, the actual tax payable is reconciled with taxes withheld at source.
