Non-Resident Tax For Owners of Rental Property

Understanding Tax Obligations for Non-Residents with Canadian Rental Property

Navigating your tax obligations in Canada as a non-resident can be challenging. This article provides a clearer understanding of what it means to be a non-resident of Canada, and what you need to do to comply with your tax obligations as a rental property owner.

Defining Non-Resident Status

Generally speaking, a non-resident of Canada is an individual who does not reside in Canada for more than 183 days within a tax year.

While there are available tools online to help you determine your residency status, the best way to find out if you are considered a non-resident is to complete the NR73 Questionnaire to Determine Residency and send it to CRA (Canada Revenue Agency) for their determination.

When you submit the NR73 form to the Canada Revenue Agency (CRA), they  review your case and issue a letter that verifies your residency status.

Safeguard Your Residency Confirmation Letter

Make sure you keep this letter safe and handy – if you decide to have your property professionally managed by a property management company, they will likely require concrete evidence of your residency status. Note that an accountant’s letter stating you are a non-resident is not adequate for this purpose and will not suffice.

How CRA Determines Your Residency Status

Among various factors, the CRA uses to determine your residency status:

• Residential Ties: Ownership of home, spouse, or dependents in Canada.
• Duration and Purpose of Visits: Length and reasons for any stays in Canada.
• Economic Ties: Employment and business connections within Canada.
• Social Ties: Memberships in Canadian organizations or participation in cultural activities.

If you are deemed a non-resident, you are required to pay taxes on the rental income generated from property owned in Canada.

Paying Your Rental Income Taxes as a Non-Resident

Who Should Remit the Rental Income Tax?

According to Canada’s Income Tax Act, if you, the landlord, are directly managing the tenant, it becomes the tenant’s responsibility to withhold 25% of the rent payment and remit it to the CRA. However, if you outsource property management to a company and they are the ones paying you the rent income, then they assume this responsibility.

• The key is that whoever is remitting the income to the landlord becomes responsible for withholding and remitting 25% of the gross rent.

UPDATE: After much confusion and fear among tenants due to a recent incident where a Montreal tenant was ordered to pay six years’ worth of unpaid taxes plus interest on behalf of his landlord—a decision upheld in tax court—the CRA clarified its stance. In a statement to Global News, the CRA affirmed it “does not expect tenants to withhold 25% of the rent from their landlords.”

Minister of Revenue Marie-Claude Bibeau stated on social media that she is working with the Minister of Finance to provide absolute clarity on this matter, assuring that tenants should not be liable for paying their landlords’ rental income taxes.

The CRA further stated that, “to ensure tax fairness,” it would communicate directly with tenants only in “uncommon and exceptional situations” where a business relationship exists between the tenant and the landlord. Global News asked the CRA for examples of such business relationships but has not yet received a response.

How Much Taxes Do You Need to Pay?

By default, the owner must remit 25% of the gross rental income to the CRA. However, as the property owner, you can designate a ‘Canadian agent’—by doing this, the CRA enables you and your Canadian Agent to remit 25% of the net rental income instead.

If You Choose Net Income Remittance

To remit your taxes based on the net rental income, the designated Canadian agent—usually a property management company—must co-sign the NR6 form with you, the property owner, and submit it to the CRA for approval.

The NR6 form estimates your net income for the year. This allows the withheld amount to align more closely with the actual numbers filed on your tax return.

Note: By co-signing the NR6 form, the property manager becomes liable if you fail to file your returns on time.

Submitting the NR6 Form

The NR6 form must be filed every year before the first rent payment is due. When completing the expense section of the NR6, you, with the assistance of your property manager, should base the calculations on anticipated expenses for the upcoming year.

Filing Your Tax Return – S216

To report your rental income, you need to submit the ‘Section 216’ tax return by June 30th of the subsequent year. Should you discover that the tax paid is not enough, you are granted until April 30^th of the following year to remit the remaining balance to the Canada Revenue Agency (CRA) without incurring interest.

For example, for the 2023 tax year, the deadline to file your Section 216 tax return is June 30^th, 2024. If you discover that you owe additional taxes, you have until April 30, 2025, to settle it.

Benefits of Hiring a property management company

Considering the complexities faced by non-resident landlords, or tenants of such landlords, it’s crucial to recognize the significant relief a property management company can provide, especially during tax season.

For non-resident landlords, a property management company offers invaluable guidance, explaining all necessary steps to ensure compliance with Canadian rental property responsibilities.

For tenants, a property management company alleviates the burden of unfamiliar responsibilities, granting peace of mind and shielding them from unexpected surprises.

If you’re a property owner heading abroad and need expert management for your Canadian property or guidance on non-resident taxes, contact us today to learn more about our services.