Remitting 25% of the gross rent in most circumstances can be financially challenging. We recommend assigning someone that lives in Canada to be your “Canadian Agent” for non-resident tax withholding purposes. This can be anyone providing they live in Canada, ideally your property manager.
To have non-resident tax withheld on your net rental income (revenue minus expenses), you and your agent must complete form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property and send it to CRA for approval. For the calculation of expenses, you can use mortgage interest, property taxes, insurance, condominium fees, property management fees, utilities (assuming the tenant isn’t paying them), and general repairs and maintenance.
The NR6 form must be filed for every calendar year or before the first rent payment is due. For example, if you have a tenant moving in for the first time on March 1st, the NR6 must be filed before March 1st for the period of March 1 to December 31. Then going forward an NR6 must be filed before January 1st of each year for the period of January 1 to December 31.
When completing the expense portion on the NR6, you are basing your calculations on what you anticipate your expenses to be in the coming year. This is usually a best guess scenario. It’s only once the year is over, and you’ve paid all the expenses that you truly know how close you were when estimating the expense portion of the NR6. If you discover you haven’t paid enough tax, then you have until April 30th the following year to pay CRA without incurring interest. However, keep in mind you still have until June 30th of the following year to file your Section 216 without incurring any penalties. Should you owe money to CRA, you will incur interest starting from May 1st. For example, if you are filing your taxes for 2015, you have until April 30th, 2016 to pay anything owing without incurring interest and June 30th, 2016 to file your 2015 Section 216 without incurring a penalty and interest for filing.