You Live Abroad, Your Rental Is in Canada: How Non-Residents Are Taxed on Canadian Rental Income (25% Withholding, NR6 and Section 216)

Step 1: Confirm you are actually a non-resident

This whole regime hinges on your being a non-resident for tax purposes in the CRA’s eyes. Residency is not decided by your passport or PR card — it turns on your residential ties to Canada: where your home is, where your spouse and children live, and where the centre of your social and economic life sits.

A common situation: the owner now lives in China or another country full-time, but still holds a Toronto investment property that is being rented out. That rent falls squarely into the non-resident regime.

• You do not get to simply declare your status. Residency is a question of fact; where it is unclear, you can ask the CRA for a residency determination.
• Status can change. Resident this year, non-resident after you leave — the way you report rent changes with it.

Step 2: Understand the default — 25% on gross rent

According to the CRA, rent paid to a non-resident on Canadian real property is subject to Part XIII tax at 25% of the gross amount paid or credited — before any expenses are deducted.

The point most owners miss: the obligation to withhold and remit sits with the Canadian agent, not with you overseas. That agent is typically your property manager, but it can also be an accountant, a family member, or a friend you appoint.

• The agent withholds 25% from each rent payment.
• The agent must remit that tax to the CRA by the 15th day of the month following the month the rent was paid or credited.
• If the agent fails to withhold or remit, the CRA can pursue the agent directly. So both owner and agent should treat this seriously.

Step 3: The year-end statement — your NR4 slip

After year-end, your agent issues you an NR4 slip (Statement of Amounts Paid or Credited to Non-Residents of Canada), showing the total gross rent paid to you for the year and the total non-resident tax withheld.

According to the CRA, the agent must file the NR4 information return with the CRA and provide your NR4 copies on or before the last day of March following the calendar year. That NR4 becomes your supporting document if you later file a Section 216 return to claim a refund.

Step 4 (the real tax saver): file under Section 216 to be taxed on NET rent

The default 25% is on gross rent, which is punishing for owners carrying a mortgage, maintenance, and management fees. The CRA provides an alternative: electing to file under Section 216.

According to the CRA, electing under Section 216 lets you pay tax on your net rental income — rent minus deductible expenses such as property tax, mortgage interest, repairs, management fees, and insurance — at ordinary graduated rates, instead of a flat 25% on gross.

• Because it is net income at graduated rates, the actual tax is usually lower than 25% of gross.
• If the 25% your agent already withheld on gross exceeds the tax payable on your Section 216 return, the CRA refunds the difference.
• The return is Form T1159, Income Tax Return for Electing Under Section 216.

Generally, you have two years from the end of the year the rent was paid to file a Section 216 return — but the NR6 route below tightens that deadline, so read on.

Section 216 recovers over-withheld tax after the fact, but your cash is tied up for a full year first. If you want withholding on the net amount during the year — rather than gross — you file Form NR6 before the rent starts coming in.

According to the CRA:

• NR6 should be filed on or before January 1 of each year, or before the first rental payment is due.
• Once the CRA approves your NR6, the agent may withhold 25% on your net rental income (a much smaller monthly amount), still remitting by the 15th of the following month.
• The trade-off: by filing NR6 you commit to filing a Section 216 return within six months of year-end — i.e., by June 30 of the following year — even if no tax is owing on your net rent. Miss that deadline and you can lose the net-income treatment and face tax assessed on the gross amount.

Everything above concerns the holding period. When you eventually sell the Canadian property, a different rule applies — Section 116.

According to the CRA, a non-resident disposing of taxable Canadian property must notify the CRA within 10 days of the disposition and request a certificate of compliance using Form T2062, paying or providing acceptable security for the estimated tax.

• Late notification carries a penalty of $25 per day, minimum $100, maximum $2,500.
• The certificate matters to the buyer too: without it, the purchaser is required to withhold a portion of the purchase price and remit it to the CRA — which affects the deal and your net proceeds.
• So a non-resident seller should bring in an accountant early to arrange Section 116, not discover at closing that funds are being held back.

Is the 25% withholding taken out of my pocket, or out of the rent?

Out of the rent. Your Canadian agent (property manager or appointee) withholds the tax from each rent payment, remits it to the CRA, and passes the remainder to you. So you receive the net amount, and the legal duty to withhold and remit on time sits with the agent.

If I don't appoint an agent, does the tax go away?

No. The withholding obligation still exists, and without an agent handling it the compliance risk is higher. The CRA strongly recommends non-resident landlords appoint a Canadian agent to manage withholding, remittance, and NR4 reporting. Failing to arrange this can still leave you exposed to assessed tax and interest.

What's the difference between NR6 and Section 216 — do I need both?

NR6 reduces your withholding during the year so the agent withholds on net rather than gross, easing cash flow. Section 216 is the after-the-fact return where you formally report net income and may recover over-withheld tax. If you file NR6, you must file a Section 216 return by June 30 of the following year. If you don't file NR6, you can still elect Section 216, generally within a two-year window.

Does Section 216 always save me money?

Usually, because you're taxed on net rent (after mortgage interest, property tax, repairs, management fees) at graduated rates, which is often less than 25% of gross. But whether — and how much — it helps depends on your expense profile and applicable rate. Have a cross-border accountant run the numbers on your actual figures.

I'm planning to sell my Canadian rental. What tax issues should I watch for?

Selling triggers Section 116: notify the CRA within 10 days of the disposition, request a certificate of compliance via Form T2062, and pay or secure the estimated tax — late notice is penalized at $25 per day. Without the certificate, the buyer must withhold tax from the proceeds. Bring in an accountant at the listing stage so funds aren't tied up at closing.